Financial Adviser, Lead Manager and Sole Underwriter. Selling Agents

Transcription

1 PROSPECTUS Mouwasat Medical Services Company Sale of 7,500,000 Shares Representing 30% of Mouwasat Medical Services Company Through an Initial Public Offering at an Offer Price of SAR (44) per Share MOUWASAT MEDICAL SERVICES COMPANY A Saudi Joint Stock Company in accordance with the Resolution of the Minister of Commerce and Industry Number 1880 dated 4 Thul Hijjah 1426H (corresponding to 4 January 2006G) Offering Period: from 24 Sha ban 1430H to 30 Sha ban 1430H (corresponding to 15 August 2009G to 21 August 2009G) Mouwasat Medical Services Company (hereinafter referred to as the Company or Mouwasat ) was founded in 1974 as a sole proprietorship with a share capital of 100,000 SAR and converted into as a limited liability company with commercial registration number issued in Dammam on 12 Ramadan 1417H (corresponding to 22 January 1997G) and a share capital of SAR 3,000,000 divided into 1,000 shares. The capital of the Company was increased on 27 Muharram 1419H (corresponding 23 May 1998G) to SAR 4,500,000 with par value of SAR 1,000 per share. On 8 Thul Qa dah 1425H (corresponding to 20 December 2004G), the shareholders resolved to increase the share capital of the Company to SAR 147,000,000, divided into 2,940,000 ordinary shares with SAR 50 nominal value, through capitalizing retained earnings. The Company was converted from a limited liability into a joint stock company in accordance with the Resolution of the Minister of Commerce and Industry Number 1880 dated 4 Thul Hijjah 1426H (corresponding to 4 January 2006G) with a share capital of SAR 147,000,000 divided into 2,940,000 ordinary shares with a nominal of SAR 50 per share. Pursuant to the resolution of the Extraordinary General Assembly convened on 25 Rabe a Athani 1427H (corresponding to 23 May 2006G), the capital of the Company was increased from SAR 147,000,000 to SAR 250,000,000 divided into 25,000,000 shares fully paid with a nominal value of SAR 10 per share through the capitalization of SAR 92,993,474 from retained earnings and SAR 10,006,526 from the statutory reserve. The Initial Public Offering (the Offering ) of 7,500,000 shares (the Offer Shares ) with a fully paid nominal value of SAR 10 per share and at a price of SAR 44 each, and representing 30% of the issued share capital of Mouwasat, is directed at and may be accepted by: Tranche (A): Institutional Investors: including a number of institutions that were approached by the Lead Manager after consulting with the Company and the Selling Shareholders and based on certain criteria set forth by the Capital Market Authority ( CMA ). Institutional Investors are initially allocated 7,500,000 shares representing 100% of the Offer Shares for the public. The Lead Manager has the right to reduce the allocated shares to 3,750,000 shares representing 50% of the Offer Shares for the public in the event there is sufficient demand by Individuals (as defined in Tranche (B) below) subject to CMA s consent. Tranche (B): Individual Investors: Including Saudi nationals. A Saudi woman who is divorced or widowed and has children from a non-saudi husband may subscribe for Offer Shares in the name(s) of her children who are minors. Should an individual subscribe on behalf of his divorcee, his application shall be void. Individuals are allocated a maximum of 3,750,000 shares representing 50% of the Offer Shares for the public. In the case where the subscription by individuals is less than the maximum allocated shares, the Lead Manager has the right to reduce the number of Offer Shares allocated to individuals to match the number of shares subscribed for, after obtaining CMA s consent. The Offer Shares are being sold by the shareholders whose names appear on page (ix) (referred to collectively hereinafter as the Selling Shareholders ), and who collectively own 100% of the Shares of the Company. Upon completion of the Offering, the Selling Shareholders will own collectively 70% of the Shares and will consequently retain a controlling interest in the Company. The net proceeds from the Offering will be distributed to the Selling Shareholders pro-rata based on each Selling Shareholder s percentage ownership in the Offer Shares being sold in the Offering. The Company will not receive any part of the proceeds from the Offering. The Offering is fully underwritten (See Underwriting section). The Offering will commence on 24 Sha ban 1430H (corresponding to 15 August 2009G) and will remain open for a period of 7 days up to and including 30 Sha ban 1430H (corresponding to 21 August 2009G) (the Offering Period ). Subscription to the Offer Shares can be made through branches of each of the selling agents (the Selling Agents ) during the Offering Period. Each individual subscriber to the Offer Shares (the Subscriber and collectively referred to as the Subscribers ) must apply for a minimum of 10 Offer Shares. Each Subscriber may not apply for more than 100,000 Offer Shares. The minimum allocation per Subscriber is 10 Offer Shares, and the balance of the Offer Shares (if available) will be allocated on a pro-rata basis. In the event that the number of Subscribers exceeds 375,000, the Company will not guarantee the minimum allocation of 10 Offer Shares per Subscriber, and the Offer Shares will be allocated equally between all Subscribers. If the number of Subscribers exceeds 3,750,000, the allocation will be determined at the discretion of the Capital Market Authority ( CMA ). Excess of subscription monies, if any, will be refunded to Subscribers without any charge or withholding by the Lead Manager or Selling Agents. Notification of the final allotment and refund of subscription monies, if any, will be made by 5 Ramadan 1430H (corresponding to 26 August 2009G) (see Subscription Terms and Conditions Allocation and Refund ) Each Share entitles the holder to one vote and each shareholder (the Shareholder ) with at least 20 Shares has the right to attend and vote at the general assembly meeting (the General Assembly Meeting ). The Offer Shares will be entitled to receive dividends declared by the Company after the Offering Period and for subsequent fiscal years (see Dividend Record and Policy section). Prior to the Offering, there has been no public market for the Shares in Saudi Arabia or elsewhere. An application has been made to the CMA for the admission of the Shares to the Official List and all relevant approvals pertaining to this Prospectus and all other supporting documents requested by the CMA have been granted. Trading in the Shares is expected to commence on the Exchange soon after the final allocation of the Shares (See Key Dates for Investors section). Subsequent to Shares commencing trading, Saudi and Gulf Cooperation Council ( GCC ) nationals, foreigners who are permanent residents in the Kingdom, companies, banks and Saudi and Gulf funds will be permitted to trade in the Shares. The Important Notice and Risk Factors sections in this Prospectus should be considered carefully prior to making an investment decision in the Offer Shares hereby. Financial Adviser, Lead Manager and Sole Underwriter Selling Agents This Prospectus includes details given in compliance with the Listing Rules of the Capital Market Authority of Saudi Arabia ( CMA or the "Authority"). The directors, whose names appear on page ii; collectively and individually accept full responsibility for the accuracy of the information contained in this Prospectus and confirm, having made all reasonable enquiries that to the best of their knowledge and belief, there are no other facts the omission of which would make any statement herein misleading. The Authority and the Saudi Arabian Stock Exchange take no responsibility for the contents of this document, make no representations as to its accuracy or completeness, and expressly disclaim any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of this document. This Prospectus is dated 18 Sha aban 1430H (corresponding to 9 August 2009G) English Translation of the Official Arabic Language Prospectus

2 IMPORTANT NOTE Important Notice This Prospectus provides full details of information relating to Mouwasat and the Shares being offered. In applying for the Offer Shares, investors will be treated as applying on the basis of the information contained in the Prospectus, copies of which are available for collection from the Company, Lead Manager, Selling Agents or by visiting the website of the Company at ( or the CMA s website at ( HSBC Saudi Arabia Limited ( HSBC ) has been appointed by the Company to act as Financial Advisor, Lead Manager and as the Sole Underwriter (the Underwriter ) in relation to the Offer Shares described herein. This Prospectus includes details given in compliance with the Listing Rules of the CMA. The Directors, whose names appear on page ii; collectively and individually accept full responsibility for the accuracy of the information contained in this Prospectus and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts the omission of which would make any statement herein misleading. While the Company has made all reasonable enquiries as to the accuracy of the information contained in this Prospectus as at the date hereof, substantial portions of the market and industry information herein are derived from external sources, and while neither HSBC nor any of the Company s advisors has any reason to believe that any of the market and industry information is materially inaccurate, such information has not been independently verified and no representation is made with respect to the accuracy or completeness of any of this information. However, the Company does take responsibility for the accuracy of its own market and industry estimates. The information contained in this Prospectus as at the date hereof is subject to change. In particular, the actual financial state of the Company and the value of the Shares may be adversely affected by future developments in inflation, interest rates, taxation, or other economic, political and other factors, over which the Company has no control. Neither the delivery of this Prospectus nor any oral, written or printed interaction in relation to the Offer Shares is intended to be, or should be construed as or relied upon in any way as, a promise or representation as to future earnings, results or events. The Prospectus is not to be regarded as a recommendation on the part of Mouwasat, the Selling Shareholders or any of their advisors to participate in the Offering. Moreover, information provided in this Prospectus is of a general nature and has been prepared without taking into account individual investment objectives, financial situation or particular investment needs. Prior to making an investment decision, each recipient of this Prospectus is responsible for obtaining independent professional advice in relation to the Offering and for considering the appropriateness of the information herein, with regard to individual objectives, financial situations and needs. The Offering is being made to, and is only capable of acceptance by, individual nationals of Saudi Arabia, and to Saudi female divorcee or widow who has children form a marriage to a non-saudi can subscribe on behalf of those children to her account given that she provides proof of motherhood, in addition to eligible funds and authorized persons. The distribution of this Prospectus and the sale of the Offer Shares to any other persons or in any jurisdiction are expressly prohibited. The Company, Selling Shareholders, and Lead Manager require recipients of this Prospectus to inform themselves about and to observe all such restrictions. Financial Information The audited financial statements for the years ended 31 December 2008, 2007, 2006 and 2005 and the notes thereto, each of which are incorporated elsewhere in the Prospectus, have been prepared in conformity with the Saudi Organization for Certified Public Accountants ( SOCPA ) Generally Accepted Accounting Principles. The Company publishes its financial statements in Saudi Arabian Riyals. Forecasts and Forward Looking Statements Forecasts set forth in this Prospectus have been prepared on the basis of certain stated assumptions. Future operating conditions may differ from the assumptions used and consequently no representation or warranty is made with respect to the accuracy or completeness of any of these forecasts. Certain statements in this Prospectus constitute forward-looking-statements. Such statements can generally be identified by their use of forward-looking words such as plans, estimates, believes, expects, anticipates, may, will, should, expected, would be or the negative or other variation of such terms or comparable terminology. These forward-looking statements reflect the current views of the Company with respect to future events, and are not a guarantee of future performance. Many factors could cause the actual results, performance or achievements of the Company to be significantly different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. Some of the risks and factors that could have such an effect are described in more detail in other sections of this Prospectus (see Risk Factors section). Should any one or more of the risks or uncertainties I

3 materialize or any underlying assumptions prove to be inaccurate or incorrect, actual results may vary materially from those described in this Prospectus as anticipated, believed, estimated, planned or expected. Subject to the requirements of the Listing Rules, Mouwasat does not intend to update or otherwise revise any industry or market information or forward-looking statements in this Prospectus, whether as a result of new information, future events or otherwise. As a result of these and other risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Prospectus might not occur in the way the Company expects, or at all. Prospective investors should consider all forward-looking statements in light of these explanations and should not place undue reliance on forward-looking statements. Corporate Directory Company s Board of Directors Name Title Status Mr. Mohammed Sultan Al-Subaie Chairman Not Independent and non-executive Mr. Nasser Sultan Al-Subaie Vice Chairman Not independent and executive Mr. Mohammed Suliman Al-Saleem Managing Director Not independent and executive Mr. Khalid Suliman Al-Saleem Deputy Managing Director Not independent and executive Mr. David Anthony Price Director Not Independent and non-executive Mr. Ibrahim Hamad Al-Babtain Director Independent and non-executive Mr. Khalid Mohammed Al-Subaie Director Not independent and executive Mr. Abdulaziz Saad Al-Mangoor Director Independent and non-executive Vacant 1 Director Independent and non-executive Source: The Company Issuer s Registered Office and Representatives Mouwasat Medical Services Company P.O. Box 282 Dammam Uhod District Block 71 King Fahad Road Saudi Arabia Tel: +966 (3) (3) Fax: +966 (3) (3) The Company intends to apply to the Ministry of Commerce and Industry to convene an Extraordinary General Assembly approving to increase the composition of the Board to 9 members. The 9th member of the board will represent the public and will be a non-independent and non-executive board member. II

4 CORPORATE DIRECTORY Company s Representative: Mr. Nasser Sultan Al-Subaie Mouwasat Medical Services Company P.O. Box 282 Dammam Saudi Arabia Tel: +966 (3) Fax: +966 (3) [email protected] Board of Directors Secretary: Mr. Mahmoud Suliman Shurrab Mouwasat Medical Services Company P.O. Box 282 Dammam Saudi Arabia Tel: +966 (3) Fax: +966 (3) [email protected] Shareholders Relation Officer: Mr. Mustafa Husny Mustafa Mouwasat Medical Services Company P.O. Box 282 Dammam Saudi Arabia Tel: +966 (3) Fax: +966 (3) [email protected] III

5 commercial Banking relationship the saudi British Bank Prince Abdulaziz bin Musaed bin Jlawy Street P.O. Box 9084, Riyadh Saudi Arabia Tel: +966 (1) Fax: +966 (1) samba Financial group King Abdulaziz Road P.O. Box 833, Riyadh Saudi Arabia Tel: +966 (1) Fax: +966 (1) arab national Bank King Faisal Street P. O. Box 9802, Riyadh Saudi Arabia Tel: +966 (1) Fax: +966 (1) the national commercial Bank King Abdulaziz Road P.O. Box 3555, Jeddah Saudi Arabia Tel: +966 (2) Fax: +966 (2) the saudi Hollandi Bank Prince Abdulaziz bin Musaed bin Jlawy Street P.O. Box 1467, Riyadh Saudi Arabia Tel: +966 (1) Fax: +966 (1) IV

6 share registrar tadawul Abraj Atta awoniya 700 King Fahad Road P.O. Box Riyadh 11555, Saudi Arabia Tel: +966 (1) Fax: +966 (1) advisors Financial Advisor and Lead Manager HsBc saudi arabia limited Olaya Street P.O. Box 9084 Riyadh 11413, Saudi Arabia Tel: +966 (1) Fax: +966 (1) Legal Advisors to the Transaction Legal Advisors Torki A. Al Shubaiki in association with Baker & McKenzie Limited Al-Ahsa Road P.O. Box 4288 Riyadh 11491, Saudi Arabia Tel: +966 (1) Fax: +966 (1) Independent auditors ernst & young 4th Floor, Flour Building P.O. Box 3795 Al-Khobar 31952, Saudi Arabia Tel: +966 (3) Fax: +966 (3) market consultant gulf consulting House P.O. Box 3140 Al-Khobar 31952, Saudi Arabia Tel: +966 (3) Fax: +966 (3) Notice: The above advisors have given and not withdrawn their written consent to the publication of their names in the Prospectus; and do not themselves, or any of their relatives or affiliates have any shareholding or interest of any kind in the Company. V

7 sole underwriter HsBc saudi arabia limited Olaya Street P.O. Box 9084 Riyadh 11413, Saudi Arabia Tel: +966 (1) Fax: +966 (1) selling agents the saudi British Bank Banque saudi Fransi riyad Bank arab national Bank the national commercial Bank samba Financial group the saudi Hollandi Bank The Saudi Investment Bank Bank aljazira Bank albilad Al Rajhi Banking and Investment corporation Prince Abdulaziz bin Musaed bin Jlawy Street P.O. Box 9084, Riyadh Saudi Arabia Tel: +966 (1) Fax: +966 (1) Maathar Street P.O. Box 56006, Riyadh Saudi Arabia Tel: +966 (1) Fax: +966 (1) King Abdulaziz Road P.O. Box 22622, Riyadh Saudi Arabia Tel: +966 (1) Fax: +966 (1) King Faisal Street P. O. Box 9802, Riyadh Saudi Arabia Tel: +966 (1) Fax: +966 (1) King Abdulaziz Road P.O. Box 3555, Jeddah Saudi Arabia Tel: +966 (2) Fax: +966 (2) King Abdulaziz Road P.O. Box 833, Riyadh Saudi Arabia Tel: +966 (1) Fax: +966 (1) Prince Abdulaziz bin Musaed bin Jlawy Street P.O. Box 1467, Riyadh Saudi Arabia Tel: +966 (1) Fax: +966 (1) Maathar Street P. O. Box 3533, Riyadh Saudi Arabia Tel: +966 (1) Fax: +966 (1) Khalid bin Alwalid Street P.O. Box 6277, Jeddah Saudi Arabia Tel: +966 (2) Fax: +966 (2) Salahuddin Road P.O. Box 140, Riyadh Saudi Arabia Tel: +966 (1) Fax: +966 (1) Olaya Road P.O. Box 28, Riyadh Saudi Arabia Tel: +966 (1) Fax: +966 (1) VI

8 The Offering The Company Mouwasat Medical Services Company, a Saudi Joint Stock Company in accordance with the Resolution of the Minister of Commerce and Industry Number 1880 dated 4 Thul Hijjah 1426H (corresponding to 4 January 2006G) Company s Activities The Company s activities are focused on operating hospitals and dispensaries that are either owned, leased or for a percentage of its profits as per the signed contracts. The origin of Mouwasat s operation dates back to 1975, with the launching of Mouwasat Dispensary in Dammam - the first private medical clinic in that region. In 1979, Mouwasat undertook the management and operation of clinics in the residential area of Al-Jubail industrial city. During this period, Mouwasat constructed its first owned comprehensive medical facility which was named Mouwasat Hospital in Dammam. The construction cost of this project exceeded SAR 130 million, and actual operation started in This is considered to be the first key project of the Company and the cornerstone which led to establishing other Mouwasat medical facilities Kingdom-wide. Establishing Mouwasat Hospital in Jubail was an important achievement for the Company. The year 2004 was a milestone in the history of Mouwasat Hospital in Jubail as it achieved a utilization ratio of 80%. During 2001, the Company started operating Mouwasat Medical Dispensary in Al- Ahsa, and Mouwasat Hospital in Madina through a lease contract with a duration of twenty years. Also, the Company entered into an agreement with United Development Company Limited in Today, the medical network of Mouwasat covers the main cities in the Kingdom including Dammam, Al-Qatif, Jubail, Al-Ahsa, Al-Khobar, Riyadh and Madina. Share Capital SAR 250,000,000 Offer Price SAR 44 Total Number of Issued Shares 25,000,000 fully paid ordinary shares The Offering The Initial Public Offering (the Offering ) of 7,500,000 shares (the Offer Shares ) with a fully paid nominal value of SAR 10 per share and at a price of SAR 44 each, and representing 30% of the issued share capital of Mouwasat, is directed at and may be accepted by: Tranche (A): Institutional Investors: including a number of institutions that were approached by the Lead Manager after consulting with the Company and the Selling Shareholders and based on certain criteria set forth by the Capital Market Authority ( CMA ). Institutional Investors are initially allocated 7,500,000 shares representing 100% of the Offer Shares for the public. The Lead Manager has the right to reduce the allocated shares to 3,750,000 shares representing 50% of the Offer Shares for the public in the event there is sufficient demand by Individuals (as defined in Tranche (B) and upon the CMA s consent. Tranche (B): Individual Investors: Including Saudi nationals. A Saudi woman who is divorced or widowed and has children from a non-saudi husband may subscribe for Offer Shares in the name(s) of her children who are minors. Should an individual subscribe on behalf of his divorcee, his application shall be void. Individuals are allocated a maximum of 3,750,000 shares representing 50% of the Offer Shares for the public. In the case where the subscription by individuals does not amount to the maximum allocated shares, the Lead Manager has the right to reduce the number of Offer Shares allocated to individuals to the subscribed amount upon CMA s consent. Number of Offer Shares 7,500,000 Offer Shares Percentage of Offer Shares The Offer Shares represent 30% of the issued share capital of the Company Nominal Value SAR 10 per share Total Value of Offer Shares SAR 330,000,000 Number of Offer Shares Available 7,500,000 Shares 2 to Institutions 2 The lead Manager has the right to reduce the allocated shares to 3,750,000 shares representing 50% of the Offer Shares for the public in the event there is sufficient demand by Individuals (as defined in Tranche (B) and upon the CMA s consent VII

9 The Offering Number of Offer Shares Available to Individuals Authorized Individual Subscribers Subscription Means for Individual Subscribers Authorized Institutional Subscribers Subscription Means for Institutional Investors A maximum of 3,750,000 Shares Number of Offered Shares Underwritten Amount Underwritten SAR 330,000,000 Minimum Number of Offer Shares to 10 shares be Applied for by Individuals Minimum Subscription Amount for SAR 440 Individuals Maximum Number of Offer Shares 100,000 shares to be Applied for by Individuals Maximum Subscription Amount for SAR 4,400,000 Individuals Minimum Number of Offer Shares to 100,000 shares be Applied for by Institutions Minimum Subscription Amount for SAR 4,400,000 Institutions Maximum Number of Offer Shares No maximum to be Applied for by Institutions Maximum Subscription Amount for No maximum Institutions Use of Proceeds Allocation of Offer Shares to Individual Subscribers Offering Period Excess of Subscription Monies This Tranche consists of individuals having the Saudi Arabian nationality and the Saudi female divorcee or widow from a marriage to a non-saudi can subscribe in the names of her minor children given that she provides proof of motherhood. Subscription applications will be available during the Offering Period at all SABB and selling agents branches. Subscription applications should be completed in accordance to the provided instructions within the Subscription Terms and Conditions section of this Prospectus. Investors who have subscribed in previous initial public offerings are able to subscribe through the internet, phone or ATM of any of the selling agents branches that offer such services to its customers. Saudi investment funds and Persons authorized by the CMA Institutional investors who have been approached by the Lead Manager have the right to subscribe in accordance to standards set by the CMA and agreed with the Company and the Selling Shareholders. The Lead Manager will provide the subscription applications to the institutional investors. 7,500,000 shares The net proceeds of SAR 319,200,000, after deducting issue expenses of SAR 10,800,000, will be paid to the Selling Shareholders pro-rata based on each Selling Shareholder s percentage ownership in the Shares being sold in the Offering. The Company will not receive any proceeds from the Offering. Allocation of the Offer Shares is expected to be completed on or around 5 Ramadan 1430H (corresponding to 26 August 2009G). The minimum allocation per Subscriber is 10 Offer Shares, and the balance of the Offer Shares allocated to Individual Subscribers Tranche (if available) will be allocated on a pro-rata basis. In the event that the number of Individual Subscribers exceeds 375,000 or if the offering is to be amended, the Company will not guarantee the minimum allocation of 10 Offer Shares per Subscriber, and the Offer Shares will be allocated equally between all Individual Subscribers. If the number of Subscribers exceeds 3,750,000, the allocation will be determined at the discretion of the Capital Market Authority ( CMA ). The Offer will commence on 24 Sha ban 1430H (corresponding to 15 August 2009G) and will remain open for a period of 7 days up to and including 30 Sha ban 1430H (corresponding to 21 August 2009G). Excess of subscription monies, if any, will be refunded without any charge or withholding by the Lead Manager and the Receiving Banks. Notification of the final allotment and refund of subscription monies, if any, will be made by 5 Ramadan 1430H (corresponding to26 August 2009G). (see Subscription Terms and Conditions Allocation and Refunds ). VIII

10 The Offering Selling shareholders Pre-Offering Shareholder Shares % Capital (SAR) Post-Offering Shares % Capital (SAR) Mohammad Sultan Al-Subaie 6,250, % 62,500,000 4,375, % 43,750,000 Suliman Mohammad Al-Saleem 6,250, % 62,500,000 4,375, % 43,750,000 Nasser Sultan Al-Subaie 6,250, % 62,500,000 4,375, % 43,750,000 Tala Trading WLL 2,500, % 25,000,000 1,750, % 17,500,000 Al-Babtain Trading Company 627, % 6,275, , % 4,392,800 Khalid Mohammad Al-Bawardi 627, % 6,275, , % 4,392,800 Mohammad Nasser Al-Subaie 627, % 6,275, , % 4,392,800 Al-Mojil Trading and Contracting Company 376, % 3,765, , % 2,635,710 General Arabian Medical & Allied Services 368, % 3,689, , % 2,582,980 Ltd Abdulaziz Saad Al-Mangoor 267, % 2,678, , % 1,875,000 Raboo Al-Anood Trading Establishment 260, % 2,604, , % 1,823,040 Ibrahim Hamad Al-Babtain 163, % 1,631, , % 1,142,080 Fahad Mohammad Al-Babtain 156, % 1,568, , % 1,098,220 Development and Trading Company Limited 134, % 1,349,230 94, % 944,470 Abdulla Fouad Holding Company 131, % 1,317,860 92, % 922,500 Mohammad Suliman Al-Saleem 1, % 17,000 1, % 11,900 Khalid Suliman Al-Saleem 1, % 17,000 1, % 11,900 Khalid Mohammad Al-Subaie 1, % 17,000 1, % 11,900 Mushari Mohammad Al-Subaie 1, % 17,000 1, % 11,900 Total Selling Shareholders 25,000, % 250,000,000 17,500, % 175,000,000 Public ,500, % 75,000,000 Total 25,000, % 250,000,000 25,000, % 250,000,000 Dividends Voting Rights Share Restrictions Listing of Shares Risk Factors The Offer Shares will be entitled to receive dividends declared by the Company after the Offering Period and for subsequent fiscal years. For discussion of the Company s dividend policy, (See Dividend Record and Policy section). The Company has one class of Shares only and no Shareholder has any preferential voting rights. Each Share entitles the holder to one vote and each Shareholder holding at least 20 Shares has the right to attend and vote at the General Assembly Meeting. For discussion of the Company s voting rights, (See Summary of Company s Bylaws and Amendments section). The Selling Shareholders may not dispose of any Shares during the period of 6 months from the date on which trading of the Offer Shares commences on the Exchange. After the 6-month restriction period elapses, the Selling Shareholders may only dispose of their Shares after obtaining CMA approval. Prior to the Offering, there has been no public market for the Shares in Saudi Arabia or elsewhere. An application has been made to the CMA for the admission of the Shares to the Official List, all relevant approvals pertaining to this Prospectus, all other supporting documents requested by the CMA, and all relevant regulatory approvals required to conduct the Offering have been granted. Trading is expected to commence on the Exchange soon after the final allocation of the Shares. (See Key Dates for Subscribers section). There are certain risks relating to the investment in this Offering. These risks can be categorized into (i) risks relating to the Company s operations; (ii) risks relating to the market; and (iii) risks relating to ordinary shares. These risks are described in the Risk Factors section of this Prospectus which should be considered carefully prior to making an investment decision in the Offer Shares. IX

11 Key Dates for Subscribers Expected Offering Timetable Offering period 24 Sha ban 1430H (corresponding to 15 August 2009G) to 30 Sha ban 1430H (corresponding to 21 August 2009G) Last date for submission of application form and Friday 30 Sha ban 1430H subscription monies (corresponding to 21 August 2009G) Notification of final allotment and refund of funds Wednesday 5 Ramadan 1430H (in the event of over-subscription) (corresponding to 26 August 2009G) Start date of trading of Offer Shares Upon completion of all relevant procedures The above timetable and dates therein are indicative. Actual dates will be communicated through national press announcements. How to Apply Subscription in the Offer shares is directed at and may be accepted by: Tranche (A): Institutional Investors, including institutions that have been contacted by the Lead Manager after discussions with the Company and the Selling Shareholders and based on predefined criteria set by the CMA. Tranche (B): Individual Investors including individuals having the Saudi Arabian nationality and the minor children of Saudi female divorcee or widow from marriage to a non-saudi can subscribe in the names of her minor children provided that proof of motherhood is submitted. Subscription application forms for individuals will be available during the Offering Period at the branches of SABB and the branches of the other Selling Agents. The forms must be completed in accordance with the instructions described in the Subscription Terms and Conditions section of this Prospectus. Subscription may also be made through the Internet, banking phone or ATMs at any of the selling agents, which offer such services to the subscribers who have recently participated in previous initial public offerings, provided that the following requirements are satisfied: the subscriber must have a bank account at the selling agent which offer such services; and there should have been no changes in the personal information of the Subscriber by way of exclusion or addition of any member of his family. All Subscribers are required to fill out the subscription application according to the instructions provided within the Subscription Terms and Conditions section of this Prospectus. X

12 Summary of Key Information This summary of key information aims to give an overview of the information contained in this Prospectus. As it is a summary, it does not contain all of the information that may be important to interested Subscribers. Recipients of this Prospectus should read the whole Prospectus before making a decision as to whether or not to invest in the Company. Capitalized and abbreviated terms have the meanings ascribed to such terms in the Definitions and Abbreviations section and elsewhere in this Prospectus. The Company The origin of Mouwasat dates back to 1974 when an establishment solely owned by Mr. Mohammad Sultan Al-Subaie was established with a share capital of 100,000 SAR for the management and operation of medical facilities and started with the launching of Mouwasat Dispensary in Dammam in The Company established its first owned comprehensive medical facility in 1984 known as Mouwasat Hospital in Dammam, which commenced operations in Mouwasat was converted into a limited liability company with commercial registration number issued in Dammam on 12 Ramadan 1417H (corresponding to 22 January 1997G) with a share capital of 3,000,000 divided into 1,000 shares distributed equally among Mr. Mohammad Sultan Al-Subaie, Mr. Suliman Mohammad Al-Saleem and Mr. Nasser Sultan Al-Subaie. The increase in capital was made through capitalizing retained earnings. The Company is engaged in ownership, management, operation, and maintenance of hospitals, medical centers, medicine warehouses, and pharmacies. The capital of the Company was increased on 27 Muharram 1419H (corresponding 23 May 1998G) to SAR 4,500,000 with par value of SAR 1,000 each. The increase in capital was made through capitalizing SAR 1,500,000 of retained earnings. On 8 Thul Qa dah 1425H (corresponding to 20 December 2004G), the shareholders resolved to increase the share capital of the Company to SAR 147,000,000 divided into 2,940,000 ordinary shares with a nominal value of SAR 50 per share through capitalizing retained earnings. The Company was converted from a limited liability into a joint stock company in accordance with the Resolution of the Minister of Commerce and Industry Number 1880 dated 4 Thul Hijjah 1426H (corresponding to 4 January 2006G) with a share capital of SAR 147,000,000 divided into 2,940,000 ordinary shares with a nominal value of SAR 50 per share. Pursuant to the resolution of the Extraordinary General Assembly convened on 25 Rabe a Athani 1427H (corresponding to 23 May 2006G), the capital of the Company was increased from SAR 147,000,000 to SAR 250,000,000 divided into 25,000,000 shares fully paid with a nominal value of SAR 10 per share through the capitalization of 92,993,474 from retained earnings and SAR 10,006,526 from statutory reserve. Today, the network of Mouwasat covers the main cities in the Kingdom including Dammam, Al-Qatif, Jubail, Al-Ahsa, Al- Khobar, Riyadh, and Madina. The Company applies clear and specific standards, criteria, and procedures pertaining to operations and human resources. In addition, the Company adopts a clear strategy for the continuous development of these standards, policies, and procedures through benefiting from the local and international experience in the medical field. Likewise, Mouwasat undertakes a continuous advancement of its medical equipment and systems to bring them in line with international standards and up-to-date technology. Recently, Mouwasat commenced a process to obtain certification from the American Joint Commission International ( JCI ) for its hospitals. JCI is an independent commission that accredits hospitals around the world according to international standards. JCI accredits hospitals for three-year periods after which it re-evaluates the hospital to ensure it is still operating within JCI standards 3. The relevant procedures started for Mouwasat hospital in Dammam, and in December 2006 all requirements were completed and the certificate was obtained on 7 December 2006 from JCI. In addition to Dammam hospital, Al-Qatif hospital was accredited on late 2008, whereas Jubail hospital obtained the JCI accreditation in April The Company plans to obtain the JCI accreditation for its other hospitals, and therefore, this is another achievement for Mouwasat that adds up to its achievements and success on improving the quality and uniqueness of their medical services. 3 Source: the Company, XI

13 Summary of Key Information Mouwasat has several cooperation agreements with various international medical bodies which allow the Company to benefit from international expertise, and help boost its medical services. These bodies include: School of Medicine, Washington University, USA; Parkway Healthcare Group, Singapore; King Hussein Medical City, Jordan. For more information, please refer to the Legal Information section. Mission and Overall Strategy The Company is dedicated to deliver world-class medical services to both internal and external customers giving an unwavering commitment with a continuous improvement of medical services, staff expertise, team work innovation, and vision for the future. Key Strengths Focused Business Strategy The Company has a thorough understanding of Saudi Arabia s healthcare market potential and requirements, together with a focused business strategy to serve customer segments. This is being achieved through increased emphasis on operational efficiency and effectiveness. Good Profitability Level and Stable Financial Position Given the steady growth and profitability of the Company and its stable financial position, together with its strategic plan based on accurate understanding and analysis of the market, the Company has planned to establish a wide medical network that covers several geographic areas and several cities within the same area to consolidate its presence in the market of medical services. Favorable Economic and Business Environment The economic environment within which the Company operates is favorable in terms of its population growth rate of 3.1% 4 and increasing demand for medical services. The Government provides financial support to the private sector such as interest-free loans that covers 50% of setup costs to a maximum of SAR 50 million and with a 4 year grace period, encouraging further increase in contribution to the national economy in general and promoting the standard of medical services. Strong Reputation The Company has successfully built a strong reputation over the past three decades due to the high quality medical services provided to its individual and corporate customers. This has contributed to its strong growth in revenues and high profitability. This is evidenced by the fact that the Company is retaining its existing clients and is attracting new clients. The Company has internal performance indicators related to its ability to retain customers for each medical center including its hospitals and dispensaries. The Company also complements its internal performance indicators with external feedback from patients and takes all complaints very seriously. Wide Client Base Saudi Aramco has been Mouwasat s client since The client list of Mouwasat also includes the SABIC group of companies, General Organization of Social Insurance, Saudi Electricity Company ( SEC ), a number of major insurance companies operating in Saudi Arabia, Saudi Arabian Airlines, cement companies, Saudi Aramco refinery in Jubail, and many others. Developed IT Systems Supported by Qualified Technical and Management Staff The Company adopts an integrated information system that is constantly improved to support its operations. It provides the Management with required information and reports to enhance performance and aid in making strategic decisions. Joint Cooperation Agreements The Company have had joint cooperation agreements with a number of major international medical centers, which have substantial impact on improving the medical services provided by the Company to match those of international hospitals and medical centers. For more information, please refer to the Legal Information section. 4 Source: Gulf Consulting House XII

14 Summary of Key Information Continuous Efforts to Become Internationally Accredited Medical Center The Company has sought to obtain the necessary international accreditation of its hospital network including JCI for quality assurance. The Company has already obtained the first accreditation for its hospital in Dammam, which JCI accredited in In addition to the Dammam hospital, Al-Qatif hospital obtained the JCI accreditation in late 2008, while the Jubail hospital obtained the accreditation in April Work is ongoing for the accreditation of the Company s other hospitals Comprehensive Services The Company provides a wide range of medical services and ensures that it delivers quality services. This supports the Company s ability to achieve stable income levels. External Contact Network The Company has in place a wide external contacts network covering most Arab countries, Europe, Africa, and Canada, which has helped the Company in the recruitment of qualified human resources to work in its medical network, with contacts such as: Ain Shams University, Egypt; King Hussein Medical City, Jordan; Royal Hospital for Sick Children NHS Trust Glasgow, UK; Montreal University, Canada; and Parkway Health Care Eagle Glen Hospital, Singapore. Extensively Experienced Management Team The management team of the Company has superior qualifications and competence in future planning, high capability in management of the medical network, extensive experience in the area of financial and information systems, and the capability to utilize modern facilities and methods. Overview of the Market The information provided in this section and in the Market Report was prepared on March 2007, therefore, does not reflect market developments since the date of the report. The report includes statistics covering the period up to 2007 and was not updated to cover recent developments in the market. The population of Saudi Arabia in 2006 was estimated at around 24.5 million according to a study conducted by Gulf Consulting House in March 2007, and the population growth rate for the next five years is estimated to be approximately 3.1%. The population growth rate drives demand for healthcare services in Saudi Arabia. In the last decade, the importance of private sector medical services had increased due to the rising market demand in the kingdom. Generally, the private sector s market share is growing in line with the increase in demand for health care services. The Ministry of Health ( MoH ) is the regulatory body of the healthcare sector and the major provider of healthcare services in Saudi Arabia. It manages a network of primary healthcare centers in addition to general and specialized hospitals. In the last decade, the importance of private medical providers had increased due to growing demand in the Kingdom. The market share of private medical providers is increasing in line with general growth in medical demand. During 1999, the Government introduced, according to the Royal Decree number M/10 dated 1/5/1423H (corresponding to 13/8/1999G) and Council of Ministers resolution number 71 dated 24/4/1420H (corresponding to 25/6/2003G), the Cooperative Health Insurance Act 5 for expatriate employees and formed the Council of Cooperative Health Insurance ( CCHI ) to regulate and implement this act. In 2005, the Ministry of Health required that companies and employees share the cost of insurance. 5 Source: The Company XIII

15 Summary of Key Information The Cooperative Health Insurance Act is currently being implemented over three phases, with the first phase requiring firms with more than 500 employees already complete. The second phase, which covers firms with 100 to 500 employees, has also been completed as of The third phase will cover companies employing less than 100 expatriates. It is expected that compulsory health insurance would be applied on Saudis at a later stage. In 2008 the Government budgetary allocation to the MoH reached SAR 25 billion an increase of 8.7% from the previous year. On average, the Government has been allocating 8.07% of the budget to healthcare expenditures from 1998 to The role of the private sector in the Saudi healthcare market is progressively growing. In 1996, there were 303 hospitals in the Kingdom, 84 of which were private. By the year 2007, 84 more hospitals were added Kingdom-wide. The private sector accounted for 123 hospitals out of the total number of 387 hospitals, which reflects an increase of 39 additional hospitals 7. In addition, there were 3,201 dispensaries, healthcare centers, and private clinics in 1996 of which 45% were provided by the private sector. The number has increased to 4,241 in 2007, 52% of which were provided by the private sector 8. In terms of inpatient beds, there were 44,214 beds in 1996, 19% of which were provided by the private sector. By the year 2007, the number of beds reached 53,519, 21% of which were provided by the private sector 9. Moreover, there were 95 million visits to outpatients clinics in 1996, 15% of which were visits to the private sector. In 2007, the total visits increased to 123 million, 35% of which were visits to the private sector 10. In terms of inpatients, there were total hospital admissions of 2 million in 1996, 22% of which were made to private healthcare providers. In 2007, the inpatient admissions increased to 2.8 million; 23% were made to private healthcare providers Source: Gulf Consulting House, the Company 7 Source: Gulf Consulting House, the Company 8 Source: Gulf Consulting House, the Company 9 Source: Gulf Consulting House, the Company 10 Source: Gulf Consulting House, the Company 11 Source: Gulf Consulting House, the Company XIV

16 Summary Financial Information The selected financial information presented below should be read together with the audited results as at and for the years ended 31 December 2008, 2007 and 2006, including in each case, the notes thereto, each of which are included elsewhere in this Prospectus. Key Financial Highlights (SAR) Year ended 31 December Operational Performance Total sales 454,552, ,670, ,927,213 Cost of sales (253,651,868) (227,276,523) (207,470,576) Gross margin 200,900, ,393, ,456,637 Selling & distribution expenses (24,365,588) (19,496,506) (18,862,998) General & administrative expenses (63,544,848) (54,750,778) (52,594,620) Net income 97,072,216 88,758,536 63,231,964 Financial Condition Current assets 220,924, ,430, ,859,166 Fixed assets 374,534, ,713, ,096,978 Intangible assets 19,545,504 22,293,453 24,250,157 Total assets 622,312, ,397, ,084,436 Current liabilities 96,214,174 89,047,047 92,329,791 Total liabilities 196,312, ,343, ,493,460 Shareholders equity 426,000, ,054, ,590,976 Key Indicators Gross profit margin 44.20% 43.27% 39.50% Net profit margin 21.36% 22.15% 18.44% Current ratio (times) Total liabilities to total assets 31.55% 34.51% 38.12% Total liabilities to equity 46.08% 52.68% 61.61% Return on equity 22.79% 24.31% 20.56% Return on assets 15.60% 15.92% 12.72% Revenue growth rate 13.45% 16.83% 28.25% Earnings growth rate 9.37% 40.37% 17.87% Source: Audited Financial Statements XV

17 Table of Contents 1 Definitions and Abbreviations 1 2 Risk Factors Risks Relating to the Company s Operations Risks Relating to the Market Risks Relating to Ordinary Shares 6 3 The Company Overview Ownership Structure Ownership Structure of Selling Shareholding Institutes Company s Activity Mouwasat Hospitals Mouwasat Dispensaries Subsidiaries Related parties Mouwasat Clients The Company s Mission and Vision 20 4 Market Overview Introduction Market Analysis Competition 24 5 Competitive Advantages, Future Plans and Prospects Competitive Advantages Future Plans Future Prospects 26 6 Operational and Support Functions Medical Affairs and Performance Management Department Facility Management and Safety Department Support Services Department Pharmaceutical Department Purchasing Department Finance and Administration Department Internal Audit Department Human Resources Department Information Technology Department Marketing and Promotion Department 32 7 Corporate Structure Directors Senior Management Corporate Governance Services Contracts Employees 41 8 Dividend Record and Policy 43 XVI

18 9 Capitalization Use of Proceeds Summary of Company s Bylaws Legal Information Branch Certificates and Licensing Summary of Material Agreements Insurance Policies Financing Facilities Trademarks Litigation Underwriting Underwriter Sale and Underwriting of the Offer Shares Subscription Terms and Conditions Subscription to Offer Shares Allocation and Refunds Acknowledgements Miscellaneous The Saudi Arabian Stock Exchange (Tadawul) Trading on Tadawul Documents Available for Inspection Management s Discussion and Analysis of Financial Condition and Results of Operations Director s Declaration for Financial Information Results of Operations Financial Condition, Liquidity and Other Items Statement of Management s Responsibility for Financial Information Accountants Report Recent Developments Management s Discussion and Analysis of Financial Condition and Results of Operations Director s Declaration for Financial Information Results of Operations Financial Condition, Liquidity and Other Items Statement of Management s Responsibility for Financial Information Accountants Report 102 XVII

19 Exhibits Exhibit 3 1: Mouwasat Ownership Structure 8 Exhibit 3 2: Ownership Structure of Tala Trading WLL 9 Exhibit 3 3: Ownership Structure of Al-Babtain Trading Company 9 Exhibit 3 4: Ownership Structure of Al-Mojil Trading and Contracting Company 10 Exhibit 3 5: Ownership Structure of General Arabian Medical & Allied Services Limited 10 Exhibit 3 6: Ownership Structure of FAL Arabia Holding Company 10 Exhibit 3 7: Ownership Structure of Development and Trading Company Limited 10 Exhibit 3 8: Ownership Structure of Abdullah Fouad Holding Company 10 Exhibit 3 9: Eastern Medical Services Company Key Financial Highlights 16 Exhibit 3 10: Breakdown of Eastern Medical Services Company Employees 17 Exhibit 3 11: Specialized Medical Clinic Company Limited Key Financial Highlights 17 Exhibit 3 12: Breakdown of Specialized Medical Clinic Company Employees 18 Exhibit 3 13: Advanced Medical Projects Company Key Financial Highlights 18 Exhibit 3 14: Breakdown of Advanced Medical Projects Company Employees 19 Exhibit 4 1: Budget and Allocation to MoH (SAR Billion) 22 Exhibit 4 2: Number of Hospitals by Provider 22 Exhibit 4 3: Dispensaries, Healthcare Centers, and Private Clinics by Provider 23 Exhibit 4 4: Hospital Beds by Provider 23 Exhibit 4 5: Outpatient Clinics Visits by Provider 23 Exhibit 4 6: Inpatient Admissions by Provider 24 Exhibit 4 7: Market Share as of 2006 by Area 24 Exhibit 4 8: Market Share as of 2006 by City 24 Exhibit 6 1: Organizational Chart 27 Exhibit 7 1: Mouwasat Board of Directors 33 Exhibit 7 2: Mouwasat Senior Management 35 Exhibit 7 3: Executive Management Committee 36 Exhibit 7 4: Internal Audit Committee 39 Exhibit 7 5: Nomination and Remuneration Committee 40 Exhibit 7 6: Number of Employees 42 Exhibit 8 1: Dividends Payment History (SAR 000) 43 Exhibit 9 1: Mouwasat Capitalization (SAR) 44 Exhibit 12 1: Branches and Licenses Registered to Mouwasat 52 Exhibit 12 2: Parties to Medical Services Agreements with Mouwasat 53 Exhibit 12 3: Mouwasat Financing Facilities as of 31 December 2008G 55 Exhibit 12 4: Trademarks Owned by Mouwasat 55 Exhibit 16 1: Income Statement (SAR 000) 63 Exhibit 16 2: Income Statement (Percentage of Revenues) 64 Exhibit 16 3: Breakdown of Revenue (SAR 000) 65 Exhibit 16 4: Selling and Distribution Expenses 66 Exhibit 16 5: General and Administrative Expenses 66 Exhibit 16 6: Other Income 67 Exhibit 16 7: Net Income 68 Exhibit 16 8: Balance Sheets (SAR 000) 69 Exhibit 16 9: Balance Sheets (Percentage of Total Assets) 69 Exhibit 16 10: Cash flow (SAR 000) 70 Exhibit 16 11: Working Capital (SAR 000) 70 Exhibit 16 12: Property, Plant and Equipment (SAR 000) 71 XVIII

20 Exhibit 16 13: Investment in Subsidiary (SAR 000) 72 Exhibit 16 14: Intangibles Assets (SAR 000) 72 Exhibit 16 15: Related Party Transactions (SAR 000) 72 Exhibit 16 16: Nature of related Party Transactions (SAR 000) 72 Exhibit 16 17: Book Value of Bank Borrowings (SAR 000) 73 Exhibit 18 1: Income Statement (SAR 000) 92 Exhibit 18 2: Income Statement (Percentage of Revenues) 93 Exhibit 18 3: Breakdown of Revenue (SAR 000) 94 Exhibit 18 4: Selling and Distribution Expenses 95 Exhibit 18 5: General and Administrative Expenses 95 Exhibit 18 6: Other Income 96 Exhibit 18 7: Net Income 96 Exhibit 18 8: Balance Sheets (SAR 000) 97 Exhibit 18 9: Balance Sheets (Percentage of Total Assets) 97 Exhibit 18 10: Cash flow (SAR 000) 98 Exhibit 18 12: Property, Plant and Equipment (SAR 000) 99 Exhibit 18 13: Intangibles Assets (SAR 000) 100 Exhibit 18 14: Related Party Transactions (SAR 000) 100 Exhibit 18 15: Nature of related Party Transactions (SAR 000) 101 Exhibit 18 16: Book Value of Bank Borrowings (SAR 000) 101 XIX

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22 1 Definitions and Abbreviations Term Definition Advisors AMPC Board of Directors or Board CEO CMA or the Authority Companies Regulations Directors Exchange Family member Financial Advisor GCC GDP Government Individual Subscriber IT Kingdom or Saudi Arabia Lead Manager Listing Rules Management Mouwasat or the Company or Parent Company Offer Shares Offering or IPO Offering Period Offer price Official Gazette Official List Person Prospectus SAR Advisors to the Company in relation to this offering, whose names appears on pages (vii) and (viii) of the Prospectus Advanced Medical Projects Company The Company s Board of Directors Chief Executive Officer The Capital Market Authority, including where the context permits any committee, sub-committee, employee or agent to whom any function of the Authority may be delegated The Companies Regulations, issued under Royal Decree No. M/6, dated 22/3/1385H, as amended Members of the Company s Board of Directors The Saudi Arabian Stock Exchange including where the context permits any committee, sub-committee, employee, officer, servant or agent to whom any function of the Exchange may for the time being be delegated, and on the Exchange means any activity taking place through or by the facilities provided by the Exchange. Pending the establishment of the Exchange, any reference to the Exchange shall be construed as a reference to Tadawul. Husband, wife, or children HSBC Saudi Arabia Limited Gulf Cooperation Council Gross Domestic Product Government of Saudi Arabia Consists of individuals having the Saudi Arabian nationality and the Saudi female divorcees or widows from a marriage to a non-saudi can subscribe in the names of her minor children given that she provides proof of motherhood. The number of offer shares allocated to individual investors is a maximum of 3,750,000 offer shares representing 50% of the offering. Information Technology The Kingdom of Saudi Arabia HSBC Saudi Arabia Limited The Listing Rules issued by the CMA pursuant to Article 6 of the Capital Market Regulations promulgated under Royal Decree No. M/30 dated 2/6/1424H (corresponding to 31/7/2003G), as amended The management of Mouwasat Medical Services Company Mouwasat Medical Services Company 7,500,000 ordinary Shares of the Company The initial public offering of 7,500,000 ordinary shares representing 30% of the issued share capital of Mouwasat The period starting from Saturday 24 Sha ban 1430H (corresponding to 15 August 2009G) up to and including Friday 30 Sha ban 1430H (corresponding to 21 August 2009G) SAR 44 per offer share Um Al Qura, the official Gazette of the Government of Saudi Arabia The list of securities maintained by the CMA in accordance with the Listing Rules A natural or legal person This document prepared by the Company in relation to the Offering Saudi Arabian Riyal 1

23 Definitions and Abbreviations Term Definition Selling Agents Selling Shareholders Shareholder Shares SMCC SOCPA Sole Underwriter SUDC Subscriber Tadawul Underwriting Agreement The Saudi British Bank, the National Commercial Bank, Bank Albilad, Bank Aljazira, Riyad Bank, Banque Saudi Fransi, the Saudi Hollandi Bank, the Saudi Investment Bank, Arab National Bank, Samba Financial Group, and Al Rajhi Bank which the Company designated as selling agents in relation to the Offering. Mouwasat shareholders whose names appear on page xiii The holder of the Shares in Mouwasat as of any particular time 25,000,000 fully paid ordinary shares of the Company with a nominal value of SAR 10 each Specialized Medical Clinic Company Limited Saudi Organization for Certified Public Accountants HSBC Saudi Arabia Limited Saudi United Development Company Limited Each individual subscribing to the Offer Shares Automated system for trading of Saudi shares The underwriting agreement between the Company, its current shareholders, and SABB, the sole underwriter 2

24 2 Risk Factors In considering an investment in the Offer Shares, prospective investors should carefully consider all the information contained in this Prospectus, including the risks described below. Mouwasat s business, prospects, financial condition, results of operations, and cash flows could be adversely and materially affected if any of the following risks, which the Management currently believes to be material, or any other risks that the Management has not identified or that it currently considers not to be material, actually occur or become material risks. The trading price of the Company s Offer Shares could decrease due to any of these risks, and prospective investors may lose all or part of their investment Risks Relating to the Company s Operations Regulatory Environment The regulatory environment in which the Company operates may be subject to change. It is difficult to predict the future course of international and local regulation. Further changes in the regulatory framework caused by political, economic, technical, and/or environmental factors could significantly impact the Company s operations by restricting the development of the Company or its customers, restricting sales and distribution of the Company s products or increasing the opportunity for additional competition. The Company may deem it necessary or advisable to modify its services or operations in order to operate in compliance with such regulations, which may have a negative impact on the Company s earnings and cash flow. In particular, the healthcare industry is subject to laws, rules, and regulations which govern the areas in which the Company operates or to which the Company may expand its business. The Company is subject to extensive international and local regulation relating, among other things, to: conduct of operations; addition of facilities and services; adequacy of medical care, including required ratios of nurses to hospital beds; quality of medical equipment and services; qualifications of medical and support personnel; confidentiality, maintenance, and security issues associated with health-related information and medical records; and the screening, stabilization, and transfer of patients who have emergency medical conditions. It is possible that health, safety, and environmental laws and regulations in the Kingdom will become significantly more stringent in the future. In order to comply with these requirements the Company may have to incur substantial operating costs and/or capital expenditure in the future. Further, if a determination is made that the Company is in material violation of such laws, rules or regulations, the Company s business, financial position, results of operations or cash flows could be adversely affected Effective Information Systems and Sound Database If the information the Company relies upon to run the business is found to be inaccurate or unreliable or if it fails to effectively maintain the information systems and data integrity, the Company may lose existing customers, face difficulty attracting new customers, determining medical cost estimates and establishing appropriate pricing. Furthermore, if such risk materializes, the Company might face disputes with customers, physicians, and/or other healthcare providers, legal issues, and might consequently suffer from increasing operating expenses Dependence on Physicians, Nurses, and other Healthcare Professionals The Company s operations depend on the efforts, ability, and experience of its employees, physicians, and medical staff. The Company competes with other healthcare providers, including providers located within the Middle East Region, in recruiting and retaining qualified physicians and other healthcare professionals. In some of the Company s markets, doctor recruitment and retention is affected by a shortage of physicians in certain specialties. The factors that physicians consider important before deciding where they will work include the level of compensation, the reputation of the hospital and its owner, the quality of the facilities, research opportunities, and community relations. The Company may not be able to compare favorably with other healthcare providers on all of these factors. Many of these healthcare professionals are well known personalities in their fields and regions, with large patient bases and referral networks, and it may be difficult to negotiate favorable terms and arrangements with them. The Company may experience significant wage and benefit pressures created by the current global nursing shortage, with many nurses pursuing opportunities abroad. The global nursing shortage may continue, and it may be necessary to enhance wages and benefits to recruit and retain nurses or increase the Company s use of more expensive temporary personnel in the face of increasing opportunities for nurses to work abroad. 3

25 Risk Factors The loss of some or all of the Company s physicians, nurses, and other healthcare professionals or the inability to attract or retain sufficient numbers of qualified physicians and other healthcare professionals could have a material adverse effect on the Company s business, financial position, and results of operations Dependence on Third Party Service Providers Mouwasat has entered into two main subcontract agreements with Al-Maghrabi Hospitals and Medical Centers where Al- Maghrabi operates and runs the ENT departments in both Dammam and Riyadh hospitals. For more information, please refer to the Legal Information section. Failure to maintain effective and adequate services within these sections of the hospital may lead to unfavorable outcomes such as discontinuation of any or all of the ENT healthcare services, therefore adversely affecting the Company s results of operations and cash flows. Furthermore, Mouwasat has entered into three medical service and cooperation agreements with universities and medical centers in the USA, Jordan, and Singapore which provide the Company with medical consultancy, exchange of physicians and advanced medical expertise. For more information, please refer to the Legal Information section. As with any such similar services, differences in views between the two parties may result in delayed decisions or in failures to agree on major matters, potentially affecting the patients schedules and operations process of the Company. Mouwasat assumes that those parties will observe their obligations. However, in the event that any party does not observe its obligations, it is possible that the Company would not be able to operate in accordance with its business plans and this may have an adverse effect on its reputation and thus its profitability Rapid Technological Advances The Company uses sophisticated and expensive medical equipment in its hospitals to provide services. The healthcare industry is characterized by frequent product improvements and evolving technology, which could, at times, lead to earlier than planned redundancy of the Company s medical equipment. Replacement of obsolete equipment may involve significant costs, as well as foreign currency risk because a large amount of equipment has to be imported from other countries. Furthermore, because of the high replacement cost of medical equipment, the Company may be unable to secure imminent replacement for significantly damaged/discontinued medical equipment, which may impair the Company s ability to provide required services to its patients Management and Operation of Riyadh Hospital Pursuant to the agreement signed between the Company and Saudi United Development Company Limited ( SUDC ), the Company has undertaken to manage and operate the SUDC s hospital in Riyadh, which operates under the name Najd Consulting Hospital. For more information, please refer to the Legal Information section. As a result, the Company may incur liabilities in the ordinary course of managing Najd Consulting Hospital. In addition, if SUDC fails to fulfill its obligations under the agreement or if the management agreement is determined to be unenforceable, such liabilities could adversely affect the Company s business, financial position, results of operations or cash flow Reputation The Company follows strict policies and implements rigorous procedures in order to achieve the best quality of service for its patients. The Company attracts, hires, and retains fully qualified physicians and nursing teams. However, the Company cannot guarantee that its physicians, nurses or other healthcare providers will not make human errors of judgment when treating patients. In which case, legal issues or proceedings may arise and the Company s reputation may suffer, resulting in a significant loss to the Company and a decline in operations. This would have a materially adverse affect on the Company s ability to stay in operation Key Licenses and Permits The Company is in possession of a number of key licenses for hospitals, dispensaries, and pharmacies. The breach of any such licenses or permits or the change of regulations may lead to the revocation, termination, or suspension of any relevant license and in probable cases imposition of financial and non-financial penalties by the government or the relevant regulator. There can be no assurances as to the Company s ability to maintain and/or comply with the necessary licenses, permits, and approvals for its services and operations. Failure in any or the inability to obtain new licenses when needed may adversely impact the Company s business prospects, financial condition, and results of operations Insurance Cover Claimants often bring actions against hospitals and other healthcare providers, alleging malpractice, product liability or other legal theories. Many of these actions involve large claims and significant defense costs. The Company maintains 4

26 Risk Factors professional liability and general liability insurance coverage to cover claims arising out of the operations of its hospitals. Some of the claims, however, could exceed the scope of the coverage in effect or coverage of particular claims could be denied. There can be no assurance that the Company s insurance coverage will be sufficient to cover all future claims. In addition, some physicians face increases in malpractice insurance premiums and limitations on availability of insurance coverage. The inability of the Company s physicians to obtain appropriate insurance coverage could cause those physicians to limit their practice. That, in turn, could result in lower admissions to the Company s hospitals. All reinsurance and any excess insurance purchased by the Company are subject to policy aggregate limitations. Should such policy aggregates be partially or fully exhausted in the future, or if actual payments of claims materially exceed projected estimates of claims, the Company s business, financial position, results of operations or cash flows could be materially adversely affected Sources of Funds The Company s ability to provide additional sources of funds depends upon many factors including its ability to increase its revenues and absorb potential losses. The Company may require additional sources of funds by obtaining loans, and if not, the Company might be forced to limit its growth due to the inability to obtain sufficient funds by borrowing. In the event of not being able to obtain sufficient funds from both internal and external sources, the Company s business, financial condition, and results of operations could be materially adversely affected Inability to Carry Out Expansions or Continue to Develop The development and expansion of the Company is one of the main elements of the Company s strategy. The Company s ability to carry out this strategy is reliant on the quality of its Management, and will also be subject to a number of factors beyond its control, including government regulations that should be adhered to and market competition. There can be no assurance that the Company will be successful in establishing or growing its business, or that such operations will be profitable Risks Relating to the Market Competitive Environment In general, the Company operates in a competitive market. In addition to Government sponsored healthcare providers that offer services free of charge, there are a number of large and well-established private healthcare companies with whom Mouwasat competes. Aramco and SABIC are main sources of revenue for the Company. Competitors will constantly attempt to attract more business from these quality customers, which may have a negative effect on the results of the Company. Furthermore, due to the introduction of compulsory healthcare insurance, Mouwasat along with other healthcare providers may face eroding profit margins due to potential increase in bargaining power of insurance companies. There can be no assurance that the Company will be able to compete effectively against current and future competitors, and changes in the competitive environment may result in price reductions, reduced margins or loss of market share, any of which could materially adversely affect such entity s profit margins Key Clients A significant portion of the Company s revenues comes from a limited number of companies such as Aramco, SABIC, and insurance companies. An adverse change in a client relationship could harm the Company s business and its financial results. The Company thus relies to a great extent on the agreements and their provisions with those insurance companies and their clients. These arrangements provide an important source of revenue for the Company and therefore impact its occupancy rates and revenues. The Company s revenues from major clients may vary from year to year and from quarter to quarter and any adverse development could affect its business, financial condition, and results of operations. The inability to renew such arrangements, the occurrence of an adverse change in the customer relationship, and/or Company s inability to negotiate more favorable terms in the future, may also have an adverse impact on its business and financial results Medical industry trends The medical industry is a continuously evolving industry and due to the constant introduction of medical and technological breakthroughs (new medications, new techniques and new medical equipments) constant pursuance of market industry requirements is necessary for the Company to continue to maintain a competitive position. This competitive advantage 5

27 Risk Factors might deteriorate by the introduction of rival products and services or cost saving measures from rival companies. This in turn might result in the Company s loss of market share and profitability. The Company cannot make any assurances that current or potential competitors will not provide products comparable or superior to those provided by it or adapt more quickly to the evolving trends or changing market requirements subject to the continuous advancement and introduction of new medical technology. Furthermore, there are no assurances that medical products can be available in sufficient amounts or that prices will not undergo major fluctuations, each of which may have a material adverse effect on the Company s business prospects, financial condition, and results of operations Market Consolidation It is possible that there will be significant consolidation in the medical industry; competitors may develop alliances and these alliances may rapidly acquire significant market share. In addition, concentration within the sector or other possible moves by major players could improve their competitive strengths and market share vis-à-vis the Company Potential Pricing Pressure While the Company, as all other medical companies in the Kingdom, is highly dependant on medications and medical equipment imported from abroad, and since the competition in the local market plays a strong role in influencing the flow of the business, the Company s profitability may be adversely affected if a price war is instigated throughout the medical industry Exchange and Interest Rate Risks Fluctuations between the value of the Saudi Riyal and foreign currencies may have an adverse effect on the costs and profits of the Company. The Company s operations involve the purchase of medical products and equipments denominated in currencies other than the Saudi Riyal. The Company does not hedge all of its currency exposure and as a result the Company has and could sustain further losses from foreign exchange fluctuations. In addition, interest payments under the Company s debt facilities are calculated by reference to a floating interest rate. An adverse shift in exchange rates or interest rates would have a negative impact Saudization Although the Company is complying with the Saudization ratio mandatory to the healthcare sector of 15%, and although its current Saudization level is around 18.4%, it actively pursues recruiting Saudi nationals under its Saudization policy. To this effect, it has established a Saudization managerial committee which has initiated key steps for the recruitment and training of the Saudi workforce that include the establishment of a national training program whereby new recruits receive on-the-job training and occasional class room instructions. The operations of the Company, its ability to meet its commitments and apply for Government loans, and its financial performance may be adversely affected if it fails in the future to comply with new more stringent Saudization policies or if new policies by the Ministry of Labor are issued Risks Relating to Ordinary Shares Effective Control by the Selling Shareholders Following this Offering, the Selling Shareholders will own no less than 70% of the Company s issued Shares. As a result, the Selling Shareholders acting together may be able to influence all matters requiring shareholders approval, and they may exercise this ability in a manner that could have a significant effect on the Company s business, financial condition, and results of operations including the election of directors, significant corporate transactions, and capital adjustments Absence of a Prior Market for the Shares Currently, there is no public market for the Shares, and there can be no assurance that an active trading market for the Shares will develop or be sustained after this Offering. If no active trading for the shares will develop, the stock s liquidity will be affected, and this may negatively affect stock price. 6

28 Risk Factors The Offer Price has been determined based upon several factors, including the history of and prospects for the Company s business, the industry in which it competes, and an assessment of the Company s management, operational, and financial results. Various factors, including the Company s financial results, general conditions in the industry, health of the overall economy, the regulatory environment within which the Company operates, and other pertinent factors beyond the Company s control could cause significant fluctuations in the price and trading liquidity of the Company s Shares Dividends Payment of dividends in the future will be dependent on, amongst other things, the Company s ability to make profits, its financial position, capital requirements, legal reserves requirements, available credit of the Company, general economic conditions, and other factors relating to board of directors sole discretion to declare dividends as they deem appropriate Future Sales and Offerings Sales of substantial amounts of the Shares in the public market following the completion of the Offering, or the perception that these sales will occur, could adversely affect the market price of the Shares. Upon the successful completion of the Offering, the Selling Shareholders will be subject to a restriction period of 6 months during which they may not dispose of any Shares. The sale of a substantial number of Shares by any of the Selling Shareholders following the 6-month share restriction period could have an adverse effect on the market for the Shares and may result in a lower market price of the Shares. The Company does not currently intend to issue additional shares immediately following the Offering. If and when the Company decides to raise additional capital by issuing new shares, the newly issued shares will dilute existing shares to a certain extent and could potentially reduce the value of the Shares Risk Relating to the Economy Any oil price fluctuations will have a direct impact on the Kingdom s economy and would subsequently be felt at all micro levels, including Mouwasat and its market value. The contribution of the oil sector to the Kingdom s GDP continues to be substantial despite the Government s successful and continuous diversification policies. However, such experience does not guarantee that the Company will not be adversely affected by variable economic, market, and political conditions in the future. 7

29 3 3.1 The Company Overview The origin of Mouwasat dates back to 1974 when an establishment solely owned by Mr. Mohammad Sultan Al-Subaie was established with a share capital of 100,000 SAR. The main objective was to manage and operate medical facilities initiated by launching Mouwasat Dispensary in Dammam in The Company established its first owned comprehensive medical facility in 1984 known as Mouwasat Hospital in Dammam, which commenced operation in Mouwasat was converted into a limited liability company with commercial registration number issued in Dammam on 12 Ramadan 1417H (corresponding to 22 January 1997G) and a share capital of SAR 3,000,000 with 1,000 shares distributed equally among Mr. Mohammad Sultan Al-Subaie, Mr. Suliman Mohammad Al-Saleem and Mr. Nasser Sultan Al-Subaie. The increase in capital was made through capitalizing retained earnings. The Company is engaged in ownership, management, operation, and maintenance of hospitals, medical centers, medicine warehouses, and pharmacies. The capital of the Company was increased on 27 Muharram 1419H (corresponding 23 May 1998G) to SAR 4,500,000 with par value of SAR 1,000 each. The increase in capital was made through capitalizing SAR 1,500,000 of retained earnings. On 8 Thul Qa dah 1425H (corresponding to 20 December 2004G), the shareholders resolved to increase the share capital of the Company to SAR 147,000,000, divided into 2,940,000 ordinary shares with SAR 50 nominal value, through capitalizing retained earnings. The Company was converted from a limited liability into a joint stock company in accordance with the Resolution of the Minister of Commerce and Industry Number 1880 dated 4 Thul Hijjah 1426H (corresponding to 4 January 2006G) with a share capital of SAR 147,000,000 divided into 2,940,000 ordinary shares with a nominal value of SAR 50 per share. Pursuant to the resolution of the Extraordinary General Assembly convened on 25 Rabe a Athani 1427H (corresponding to 23 May 2006G), the capital of the Company was increased from SAR 147,000,000 to SAR 250,000,000 divided into 25,000,000 shares fully paid with a nominal value of SAR 10 per share. This SAR 103,000,000 increase was financed by capitalizing SAR 92,993,474 from retained earnings and SAR 10,006,526 from statutory reserve. 3.2 Ownership Structure The shareholders of the Company before and after the Offering are as follows: Exhibit 3 1: Mouwasat Ownership Structure Pre-Offering Post-Offering Shareholder Shares % Capital Shares % Capital (SAR) (SAR) Mohammad Sultan Al-Subaie 6,250, % 62,500,000 4,375, % 43,750,000 Suliman Mohammad Al-Saleem 6,250, % 62,500,000 4,375, % 43,750,000 Nasser Sultan Al-Subaie 6,250, % 62,500,000 4,375, % 43,750,000 Tala Trading WLL 2,500, % 25,000,000 1,750, % 17,500,000 Al-Babtain Trading Company 627, % 6,275, , % 4,392,800 Khalid Mohammad Al-Bawardi 627, % 6,275, , % 4,392,800 Mohammad Nasser Al-Subaie 627, % 6,275, , % 4,392,800 Al-Mojil Trading and Contracting 376, % 3,765, , % 2,635,710 Company General Arabian Medical & Allied 368, % 3,689, , % 2,582,980 Services Limited Abdulaziz Saad Al-Mangoor 267, % 2,678, , % 1,875,000 Raboo Al-Anood Trading 260, % 2,604, , % 1,823,040 Establishment Ibrahim Hamad Al-Babtain 163, % 1,631, , % 1,142,080 Fahad Mohammad Al-Babtain 156, % 1,568, , % 1,098,220 Development and Trading Company 134, % 1,349,230 94, % 944,470 Limited Abdullah Fouad Holding Company 131, % 1,317,860 92, % 922,500 Mohammad Suliman Al-Saleem 1, % 17,000 1, % 11,900 8

30 The Company Pre-Offering Post-Offering Shareholder Shares % Capital Shares % Capital (SAR) (SAR) Khalid Suliman Al-Saleem 1, % 17,000 1, % 11,900 Khalid Mohammad Al-Subaie 1, % 17,000 1, % 11,900 Mushari Mohammad Al-Subaie 1, % 17,000 1, % 11,900 Total Selling Shareholders 25,000, % 250,000,000 17,500, % 175,000,000 Public ,500, % 75,000,000 Total 25,000, % 250,000,000 25,000, % 250,000,000 Source: Mouwasat Ownership Structure of Selling Shareholding Institutes Tala Trading WLL Exhibit 3 2: Ownership Structure of Tala Trading WLL Shareholder Percentage Firas Faisal Eissa Shihab 51.00% Muhannad Saif Abdulrahman Al-Ashram Al-Falasi 49.00% Total % Source: Mouwasat Al-Babtain Trading Company Exhibit 3 3: Ownership Structure of Al-Babtain Trading Company Shareholder Percentage Mohammed Al-Abdullah Al-Babtain 33.33% Ibrahim Al-Abdullah Al-Babtain 33.33% Al-Johrah Abdulaziz Al-Babtain 2.07% Norah Bader Al-Naser Al-Bader 2.07% Norah Hamad Al-Abdullah Al-Babtain 1.22% Osama Hamad Al-Abdullah Al-Babtain 2.43% Hind Hamad Al-Abdullah Al-Babtain 1.22% Abdulkareem Hamad Al-Abdullah Al-Babtain 2.43% Haya Hamad Al-Abdullah Al-Babtain 1.22% Maha Hamad Al-Abdullah Al-Babtain 1.22% Sultan Hamad Al-Abdullah Al-Babtain 2.43% Khulood Hamad Al-Abdullah Al-Babtain 1.22% Bandar Hamad Al-Abdullah Al-Babtain 2.43% Mansour Hamad Al-Abdullah Al-Babtain 2.43% Ibrahim Hamad Al-Abdullah Al-Babtain 2.43% Lulwa Hamad Al-Abdullah Al-Babtain 1.22% Mohammed Hamad Al-Abdullah Al-Babtain 2.43% Munira Hamad Al-Abdullah Al-Babtain 1.22% Abdullah Hamad Al-Abdullah Al-Babtain 2.43% Msha el Hamad Al-Abdullah Al-Babtain 1.22% Total % Source: Mouwasat 9

31 The Company Al-Mojil Trading and Contracting Company Exhibit 3 4: Ownership Structure of Al-Mojil Trading and Contracting Company Shareholder Percentage Saleh Abdulaziz Ibrahim Al-Mojil 47.00% Sa ad Ibrahim Abdulaziz Al-Mojil 53.00% Total % Source: Mouwasat General Arabian Medical & Allied Services Limited Exhibit 3 5: Ownership Structure of General Arabian Medical & Allied Services Limited Shareholder Percentage FAL Arabia Holding Company 88.00% Badriya Hussain Mansour Al-Assaf 12.00% Total % Source: Mouwasat FAL Arabia Holding Company Exhibit 3 6: Ownership Structure of FAL Arabia Holding Company Shareholder Percentage Fahad Mohammed Al-Saleh Al-Athel 90.00% Badriya Hussein Mansour Al-Assaf 5.00% Ghadah Fahad Mohammed Al-Athel 5.00% Total % Source: Mouwasat Raboo Al-Anood Trading Establishment Raboo Al-Anood is an establishment owned by Mr. Abdulilah Sa ad Mohammed Al-Drees Development and Trading Company Limited Exhibit 3 7: Ownership Structure of Development and Trading Company Limited Shareholder Percentage Khalid Hamad Ali Al-Mubarak 17.50% Ali Hamad Ali Al-Mubarak 17.50% Al-Waleed Hamad Ali Al-Mubarak 17.50% Ziyad Hamad Ali Al-Mubarak 17.50% Munira Mohammed Ali Al-Qu aid 12.50% Munira Hamad Ali Al-Mubarak 8.75% Rabi a Hamad Ali Al-Mubarak 8.75% Total % Source: Mouwasat Abdullah Fouad Holding Company Exhibit 3 8: Ownership Structure of Abdullah Fouad Holding Company Shareholder Percentage Abdullah Fouad Abdulaziz Abdulrahman Abu Bshait 1.00% Fouad Abdullah Fouad Abdulaziz Abu Bshait 13.20% Faisal Abdullah Fouad Abdulaziz Abu Bshait 13.20% Siham Abdullah Muneeb Nagashbandi 6.60% Aneesa Abdullah Fouad Abdulaziz Abu Bshait 6.60% 10

32 The Company Shareholder Percentage Najat Abdullah Fouad Abdulaziz Abu Bshait 6.60% Wedad Abdullah Fouad Abdulaziz Abu Bshait 6.60% Fatin Abdullah Fouad Abdulaziz Abu Bshait 6.60% Fareeda Abdullah Fouad Abdulaziz Abu Bshait 6.60% Farah Abdullah Fouad Abdulaziz Abu Bshait 6.60% Fayda Abdullah Fouad Abdulaziz Abu Bshait 6.60% Firyal Abdullah Fouad Abdulaziz Abu Bshait 6.60% Falak Abdullah Fouad Abdulaziz Abu Bshait 6.60% Raniya Abdullah Fouad Abdulaziz Abu Bshait 6.60% Total % Source: Mouwasat 3.4 Company s Activity The origin of Mouwasat s operation dates back to 1975, with the launching of Mouwasat Dispensary in Dammam - the first private medical clinic in that region. In 1979, Mouwasat undertook the management and operation of clinics in the residential area of Al-Jubail industrial city. In 1984, Mouwasat established its first owned comprehensive medical facility which was named Mouwasat Hospital in Dammam. The construction cost of this project exceeded SAR 130 million, and actual operation started in This is considered to be the first key project of the Company and the cornerstone which led to establishing other Mouwasat medical facilities Kingdom-wide. Establishing Mouwasat Hospital in Jubail was accomplished through two phases, the first phase involved completing the outpatient clinics, while the Company developed the inpatient department of the hospital in the second phase. Mouwasat Hospital in Jubail is considered an ideal example for private sector hospitals due to its unique architectural design, its advanced medical supplies and equipment in use, and its operating efficiency. The year 2004 was a milestone in the history of Mouwasat Hospital in Jubail as it achieved a utilization ratio of 80%. During 2001, the Company started operating Mouwasat Medical Dispensary in Al-Ahsa and Mouwasat Hospital in Madina through a lease contract with a duration of twenty years. In addition, the Company entered into an agreement with United Development Company Limited in 2002 to manage and operate Najd Consulting Hospital in Riyadh. For more information, please refer to the Legal Information section. In 2006, Mouwasat acquired 51% of the Eastern Medical Services Company, which owns the Gulf Specialized Hospital which is known today as Mouwasat Hospital in Al-Qatif. Today, the medical network of Mouwasat covers the main cities in the Kingdom including Dammam, Al-Qatif, Jubail, Al- Ahsa, Al-Khobar, Riyadh, and Madina. The Company applies clear and specific standards, criteria, and procedures pertaining to operations and human resources. In addition, the Company adopts a clear strategy for the continuous development of these standards, policies, and procedures through benefiting from its local and international experience in the medical field. Likewise, Mouwasat undertakes a continuous advancement of its medical equipment and systems to bring them in line with international standards and up-to-date technology. Recently, Mouwasat commenced a process to obtain certification from the American Joint Commission International ( JCI ) for its hospitals. JCI is an independent commission that accredits hospitals around the world according to international standards. JCI accredits hospitals for three-year periods after which it re-evaluates them to ensure that they are still operating within JCI standards 12. The relevant procedures started for Mouwasat hospital in Dammam, and in December 2006 all requirements were completed and the JCI certificate was obtained on 7 December In addition to Dammam hospital, Al-Qatif hospital was accredited in late 2008, and Jubail hospital was accredited in April The Company plans to obtain the JCI accreditation for its other hospitals to add to its achievements and maintain its unique position in the market. The Company does not plan to make any significant change to the nature of its current operations. 12 Source: the Company, 11

33 The Company 3.5 Mouwasat Hospitals Mouwasat hospitals are distinguished models due to their locations, capacities, high technology medical systems, and the non-medical furniture and equipments. In general, Mouwasat hospitals provide complete line of medical services through their outpatient clinics including internal medicine, obstetrics and gynecology, pediatrics, orthopedics, dermatology, venereology, general surgery, ophthalmology, ENT, cardiology, vasculars, psychiatry, neurology, dentistry, plastic surgery, rheumatism, and physiotherapy. The hospitals receive emergency and accident cases through emergency rooms 24 hours a day. The inpatient departments are equipped with advanced medical technologies to treat inpatient cases. The inpatient services include operation rooms, labor and delivery rooms, and intensive care units for adults and infants, which also work 24 hours a day. The inpatient rooms are divided into semi-private shared rooms with a capacity of two beds, and private rooms with a single bed, in addition to the executive suites, with varied services. All hospitals have integrated medical laboratories and radiology departments equipped with the latest and most advanced medical systems such as magnetic resonance imaging equipment, vascular color dupplers, three dimensions ultrasound, mammography and jaws scanning equipment, in addition to cardiac catheters, and related supporting devices, and arteries diseases. Additionally, Mouwasat offers advanced medical services in the ophthalmic and ENT divisions in Dammam hospital through collaboration with Hospitals & Centers. For more information, please refer to the Legal Information section. Mouwasat has several cooperation agreements with various international medical bodies with the purpose of providing required medical services. These cooperative agreements allow the Company to benefit from international expertise, and help boost its medical services in terms of latest available services and applied treatments in the medical field. These bodies include: School of Medicine, Washington University, USA; Parkway Healthcare Group, Singapore; King Hussein Medical City, Jordan; For more information, please refer to the Legal Information section. Such joint agreements make it possible to exchange knowledge and experience, through inviting international consultants to the Kingdom to undertake surgeries and to offer suggestions in developing the medical and operational systems and training the professionals in different related fields Mouwasat Hospital in Dammam The hospital is adjacent to King Fahad International Airport Road in Ohod District in Dammam. It is distinguished by its building, facilities and the 31,500 m2 area on which it is erected. This integrated medical complex consists of the following: 49 Outpatient clinics covering all basic medical specializations. Recently, Dammam hospital witnessed a huge expansion, where operations of newly added facilities commenced in October The area of this expansion is approximately 17,000 m2 which includes 100 outpatient clinics, 45 inpatient beds and approximately 22 suites, in addition to a full range of ancillaries services to support the outpatient activities. The total cost of this expansion is SAR 100 million; Six emergency beds and 10 specialized clinics, working for 16 hours daily; Around 240 beds distributed among the patients rooms; either one or two beds per room, in addition to the executive suites; A recently-established unit for cardiac surgeries, arteries, and blood vessels treatment; A comprehensive and modern radiology department, including X-ray, computed tomography systems, magnetic resonance imaging (MRI), mammography and jaws scanning devices, three dimensions ultrasound, and color ultrasound, in addition to an osteoporosis measuring unit. The department provides independent services to referred cases from other hospitals and medical centers in the area; Complete line of medical laboratory equipment including clinical Chemistry, Hematology (blood diseases), histopathology (tissue diseases) and microbiology. This medical laboratory is a comprehensive department that offers services to the hospital s outpatient clinics and inpatient departments. It also provides services related to medical analysis independently to cases transferred from other hospitals and clinics. The labs include a blood bank with sufficient reserve of different blood units for emergency cases. Mouwasat Hospital in Dammam provides various medical programs that aim at offering quality services to its clients. Experienced and highly skilled consultants visit the hospital regularly from many international and regional medical institutions. 12

34 The Company Mouwasat hospital in Dammam provides services to a wide client base, including Saudi Aramco staff and their families since 1996 and the Saudi Arabian Basic Industries Company (SABIC) staff and their families since 1988, in addition to insurance companies licensed by the Cooperative Council for Health Insurance ( CCHI ), the General Organization for Social Insurance, Saudi Arabian Airlines, and Saudi Electricity Company. The Company has signed contracts with these clients which are renewable either periodically or automatically if neither party express otherwise Mouwasat Hospital in Jubail Mouwasat Hospital in Jubail started its operations as a medical dispensary consisting of outpatient clinics and an emergency room. This is considered to be the first phase of establishing the hospital. The Company expanded the operations of the dispensary by adding a new facility for inpatient services. The project was completed and began operations during the year The long-term vision of the Company in designing the initial phase of the dispensary took into consideration potential future expansions and the future market demand in Jubail area; therefore, the shift from a dispensary to a fully integrated hospital was completed efficiently. The land on which the hospital is erected is rented from the Royal Commission for Jubail and Yanbu for 30 years starting 13 Rabi I 1424H (corresponding to 4 May 2003), the company has the option to purchase the land upon expiry of the agreement. Today, the hospital includes more than 49 outpatient clinics serving the local demand in Jubail. The Hospital was expanded in February 2009 by adding 30 beds and 12 clinics which increased the capacity to 112 beds and 49 clinics. The total cost of this expansion was SAR 15 million. The medical services in Jubail hospital cover the following basic specialties: Obstetrics and gynecology; Pediatrics; Ophthalmology; ENT; Dentistry; Cardiac diseases; Internal medicine and Chest; Dermatology; General Surgery; Psychiatry and neurology; Urology; Orthopedics; Physiotherapy & Rehabilitation; Orthodontics; Diagnostic and therapeutic endoscopy. Mouwasat has an exchange program in place where by hospitals and clinics exchange physicians on temporary basis for consultancy purposes. Mouwasat hospital and clinics also receive visitors by physicians from abroad to benefit from their experience in the filed of medicine, as part of the continuous development and enhancement program. The inpatient section of Mouwasat Hospital in Jubail consists of 84 beds divided into private rooms and executive suites. All rooms are fully furnished and equipped with state-of-art medical technologies, in addition to two departments for radiology which include very advanced fluoroscopy equipment, computed tomography system, and three dimension ultrasound, as well as an integrated laboratory which includes clinical chemistry, hematology, a microbiology department, and a blood bank. SABIC staff members and their families are considered to be key clients to Mouwasat Hospital in Jubail. The Company has allocated 60% of the hospital s operation capability to meet their requirements. The remaining 40% of the operation capacity is assigned to meet the requirements of the other clients, walk-in patients, other companies staff members, and clients covered by licensed health insurance companies Mouwasat Hospital in Madina Mouwasat Hospital in Madina is distinguished by its location, which is located on the road to the main airport and its inpatient capacity of 120 beds. It is considered to be the second biggest hospital in Madina and currently includes 34 outpatient clinics, emergency room, in addition to medical services related to ophthalmology and ENT clinics through Maghrabi Hospitals & Centers. The Company expects to add 3 clinics in The hospital started its operations during the year 2000, through a rental contract signed with Maghrabi Hospitals & Centers; the owner of the buildings of the hospital (see Legal Information section). The hospital s medical services include the following basic medical specialties: 13

35 The Company Obstetrics and gynecology; Pediatrics; Ophthalmology (through Maghrabi); ENT (through Maghrabi); Dentistry; Cardiac diseases; Internal medicine and Chest; Dermatology; General Surgery; Psychiatry and neurology; Urology; Orthopedics; Physiotherapy & Rehabilitation; Orthodontics; Diagnostic and therapeutic endoscopy. The hospital offers laboratory and radiology services through departments equipped with advanced technologies, offering fluoroscopic X rays, computed tomography system, panoramic X rays (for jaws screening), and mammogram X rays (for breast screening and radiology equipment for measuring osteoporosis), in addition to other fully integrated medical labs (chemistry, hematology), microbiology, and a blood bank. Furthermore, the hospital offers its services to the inpatient section through private rooms with a single bed, or semi-private rooms with two beds, in addition to executive suites. Also, the hospital has an advanced intensive care unit for the adults, and infants, and observation units Najd Consulting Hospital Managed by Mouwasat The Company currently manages Najd Consulting Hospital in Riyadh by means of a management contract signed with SUDC on 11 August 2002 (and as amended on 19 Jumada Athani 1428H (corresponding to 1 July 2007G)). The duration of the management contract is 10 years. However, the Company may consider withdrawing from managing the hospital before the expiry of the contract in accordance with the agreement or as agreed upon by both parties. Please refer to the Legal Information section. The 160 beds hospital is located on the eastern ring road of Riyadh (exit 14). Mouwasat is managing 21 outpatient clinics and 3 emergency rooms. The hospital in Riyadh offers a wide range of basic medical services through its outpatient clinics and inpatient sections that include the following: Obstetrics and gynecology; Pediatrics; Ophthalmology (through Maghrabi); ENT (through Maghrabi); Dentistry and related surgery (through Maghrabi); Cardiac diseases; Internal medicine, Chest; Dermatology; General Surgery; Psychiatry and neurology; Urology; Orthopedics; Physiotherapy & Rehabilitation; Diagnostic and therapeutic endoscopy Mouwasat Hospital in Al-Qatif Mouwasat acquired 51% of the Eastern Medical Services Company, (the Eastern Medical ), which owns the Gulf Specialized Hospital (renamed Mouwasat Hospital in Al-Qatif), on 28 Jumada Athani 1427H (corresponding to 24 July 2006G). For more information on Eastern Medical Services Company please refer to Subsidiaries, affiliates, and related parties section. The hospital includes 120 beds, and the Company believes that the location of the hospital, being the sole hospital in Al-Qatif, will add to its competitive advantages and will offer the Company an excellent opportunity to increase its market share and widen its customer base. 14

36 The Company The hospital s medical services cover the following basic medical specialty: Obstetrics and gynecology; Pediatrics; Ophthalmology; ENT; Dentistry; Cardiac diseases; Internal medicine, Chest and Kidneys; Dermatology; General Surgery; Psychiatry and neurology; Urology; Orthopedics; Physiotherapy & Rehabilitation; Orthodontics; Diagnostic and therapeutic endoscopy. The inpatient section of Mouwasat Hospital in Al-Qatif consists of 120 beds divided into private rooms, semi-private and executive suites, and the outpatient section consists of 35 clinics. All rooms are fully furnished and equipped with state-ofart medical technologies, in addition to two sections for radiology and medical analysis (the medical lab), which includes the most recent fluoroscopy equipment, computed tomography system, and three dimension ultrasound, as well as a medical lab section which includes clinical chemistry, hematology, microbiology, and blood bank. 3.6 Mouwasat Dispensaries Mouwasat operates two dispensaries; Mouwasat dispensary in Dammam and Mouwasat dispensary in Al-Ahsa. The basic healthcare services are being offered in these two dispensaries through outpatient clinics and emergency unit working 24 hours a day. Further, the dispensaries also provide radiology and laboratory services to the patients in addition to pharmaceutical services in both dispensaries Mouwasat Dispensary in Dammam The dispensary, which started operation in 1975, offers basic healthcare services through its 23 outpatient clinics, openning from 8:00 am to 12:00 midnight daily, with an emergency unit working 24 hours a day. The dispensary offers healthcare services in basic medical specialties including pediatrics, obstetrics, and gynecology, internal medicine, dermatology, urology, ENT, general surgery, dentistry, and orthodontics, as well as radiology and medical lab departments equipped with the latest in fluoroscopy equipment, and three dimension ultrasound. Hospitals and dispensaries of Mouwasat exchange field visits from physicians and medical staff for consultancy purposes. The physicians in the clinic refer the cases that need special medical care, surgery, or advanced diagnosis or treatment to Mouwasat Hospital in Dammam, where additional services are available for these cases, such as the laboratory and radiology departments to ensure that patients are provided with the best quality services required. The building is leased by Mouwasat as per an agreement with Mr. Mohammed Abdulhadi Al-Abdulhadi. The current agreement will expire on the 1st of September This agreement is renewed automatically unless one party notifies the other 2 months prior to expiration of their desire not to renew the agreement. The Company expects that 5 clinics will be added in 2011 and 5 more in 2013 to the dispensary Mouwasat Dispensary in Al-Ahsa Mouwasat is operating and managing Mouwasat Dispensary in Al-Ahsa, which is rented by Mouwasat from Mr. Hamad al-hulaibi for a fee of SAR 500,000 (SAR 250,000 paid semi annually). The dispensary at Al-Ahsa is distinguished by the diversity of its medical specializations that cover most of the patients needs whithin the Al-Ahsa area. It includes 14 outpatient clinics and an emergency unit providing 24 hours services. The dispensary offers healthcare services in the basic medical specialties including pediatrics, obstetrics and gynecology, internal medicine, dermatology, urology, ENT, general surgery, orthopedics, and dentistry as well as radiology and medical lab departments. The two departments are equipped with the latest technology medical system such as fluoroscopy equipment, and three dimension ultrasound. Currently, the clinic is undergoing a development plan for the dentistry clinic, with the purpose of increasing its capacity. This dentistry clinic offers a wide range of related services including mouth and jaw surgeries. Consultants from Mouwasat Hospital in Dammam visit Mouwasat dispensary at Al-Ahsa on a regular basis in order to offer medical services for critical cases that require the interference of experienced consultants and to refer cases that require advanced diagnosis or treatment to the Dammam hospital. 15

37 The Company The Company intends to add new clinics in the future if such additions are deemed to be economically feasible by the Company Subsidiaries Eastern Medical Services Company Mouwasat recently acquired 51% of the Eastern Medical Services Company, (the Eastern Medical ), which owns the Gulf Specialized Hospital (renamed Mouwasat Hospital in Al-Qatif), on 28 Jumada Athani 1427H (corresponding to 24 July 2006G), with an acquisition cost of SAR 28,560,000. In addition to Mouwasat, Mr. Zamil Abdullah Zamil owns 29% of the subsidiary and Mr. Wasl Saad Al-Ahmadi owns 20%. Eastern Medical Services Company is managed by Mr. Nasser Sultan Al-Subaie on behalf of the partners. The hospital in Al-Qatif is managed by Mouwasat Company in return for a fixed percentage of operating earnings. For more information, please refer to the Legal Information section. Eastern Medical is a Saudi limited liability company registered in Al-Khobar under commercial registration number , issued on 10 Ramadan 1420H (corresponding to 18 December 1999G). The main business activities of Eastern Medical are to own, establish, and maintain hospitals, clinics, medical centers, drug warehouses, and pharmacies. The hospital includes 120 beds and the Company believes that the location of the hospital, being the sole hospital in Al- Qatif will add to its competitive advantage and will offer the Company an excellent opportunity to increase its market share and widen its customer base. Eastern Medical Services Company had revenues of SAR 42.9 million, SAR 56.8 million, and SAR 69.1 million in 2006, 2007, and 2008, respectively. The following table provides summary of the financial information of Eastern Medical Services Company: Exhibit 3 9: Eastern Medical Services Company Key Financial Highlights As of 31 December SAR Operational Performance Total sales 69,055,804 56,778,686 42,923,323 Cost of sales (42,344,589) (35,899,826) (29,999,268) Gross margin 26,711,215 20,878,860 12,924,055 Selling & distribution expenses (4,478,858) (4,015,114) (3,275,895) General & administrative expenses (11,597,608) (9,144,148) (9,379,106) Amortization of intangible assets (1,370,962) (1,370,962) (1,370,962) Net income 8,129,131 4,942,836 (2,343,032) Financial Condition Current assets 25,830,956 18,491,427 14,571,059 Property & equipment 67,485,497 70,689,516 74,751,876 Intangible assets 1,657,438 3,028,400 4,399,362 Total assets 94,973,891 92,209,343 93,722,297 Current liabilities 34,369,882 29,764,005 23,555,880 Total liabilities 60,494,741 65,859,324 69,822,297 Shareholders equity 34,479,150 26,350,019 23,900,000 Key Indicators Gross profit margin 38.7% 36.8% 30.1% Net profit margin 11.8% 7.6% (5.45%) Current ratio (times) Total liabilities to total assets 63.7% 71.4% 74.5% Total liabilities to equity 175.5% 249.9% 292.1% Return on equity 23.6% 18.7% (9.8%) Return on assets 8.6% 5.4% (2.5%) Revenue growth rate 21.6% 32.3% 37.2% Earnings growth rate 64.5% 310.9% 64.3% Source: Audited Financial Statements of Eastern Medical Services 16

38 The Company Provided below is a summary of Eastern Medical Services Company s employees: Exhibit 3 10: Breakdown of Eastern Medical Services Company Employees Senior management Doctors Saudi Non-Saudi Total Nurses & Technicians Administrative Senior management Doctors Nurses & Technicians Administrative Senior management Doctors Nurses & Technicians Administrative 31 Dec Dec Dec Dec Source: Mouwasat The Saudization rate of Eastern Medical Services Company was 28.3% as of 31 December Total Specialized Medical Clinic Company Limited Mouwasat owns 95% of the share capital of Specialized Medical Clinic Company ( SMCC ). SMCC is a Saudi limited liability company with commercial registration number dated 11 Safar 1427H (corresponding to 11 March 2006G) with a share capital of SAR 500,000 divided into 500 shares of SAR 1,000 par value each. The objective of the SMCC is establishing dermatology and plastic surgery centers. In addition to Mouwasat, Dr Saleh AbdelKader Khawaja owns 5% of the subsidiary, whose revenues were SAR 115,768 in 2007 and SAR 112,453 in The following table provides summary of the financial information of Specialized Medical Clinic Company Limited: Exhibit 3 11: Specialized Medical Clinic Company Limited Key Financial Highlights SAR Operational Performance Revenues 112, ,768 76,719 General & administrative expenses (2,100) (2,105) (5,900) Net income form main operations 110, ,663 70,819 Net income 110,400 90,542 70,819 Financial Condition Current assets 788, , ,819 Current liabilities 16,475 17,000 - Shareholders equity 771, , ,819 Key Indicators Gross profit margin 98.1% 98.2% 92.3% Net profit margin 98.2% 78.2% 92.3% Current ratio (times) Total liabilities to total assets 2.0% 2.5% - Total liabilities to equity 2.1% 2.6% - Return on equity 14.3% 13.7% 12.4% Return on assets 14.0% 13.3% 12.4% Revenue growth rate (2.9%) 50.9% - Earnings growth rate 21.9% 27.8% - Source: Audited Financial Statements of Specialized Medical Clinic The subsidiary, which owns a plastic surgery center in Al-Khobar, is managed by Mr. Mohammad Suliman Al-Saleem (the Managing Director of Mouwasat). An agreement has been signed by Mouwasat and its subsidiary whereby Mouwasat pays the subsidiary a fixed percentage of operating earnings. For more information, please refer to the Legal Information section. 17

39 The Company Provided below is a summary of Specialized Medical Clinic Company s employees: Exhibit 3 12: Breakdown of Specialized Medical Clinic Company Employees Senior management Doctors Saudi Non-Saudi Total Nurses & Technicians Administrative Senior management Doctors Nurses & Technicians Administrative Senior management Doctors Nurses & Technicians Administrative 31 Dec Dec Dec Dec Source: Mouwasat The Saudization rate of Specialized Medical Clinic Company was 14.3% as of 31 December Total Advanced Medical Projects Company Advanced Medical Projects Company ( AMPC ) is a Saudi limited liability company with commercial registration number dated 3 Thul Hijjah 1418H (corresponding to 1 April 1998G). The paid up capital of AMPC is SAR 10,000,000 divided into 10,000 shares with par value of SAR 1,000 each. The capital is equally divided between Mouwasat and Al- Maghrabi Hospitals Company for Eye and Ear, with each owning 50%. AMPC is engaged in ophthalmology and ENT surgery and treatment and its current activities are concentrated on the ownership of the ophthalmology and ENT center located in close proximity from the Mouwasat Hospital in Dammam. Revenues were SAR 28.3 million, SAR 37.5 million, and SAR 26.7 million in 2006, 2007, and 2008 respectively. AMPC signed an agreement with the Company to lease a piece of land to build a new medical center specializing in ENT. The conditions of the agreement prohibit AMPC from fully or partially sub-contracting the agreement to a third party. The following table provides summary of the financial information of Advanced Medical Projects Company: Exhibit 3 13: Advanced Medical Projects Company Key Financial Highlights 31 December SAR Operational Performance Total revenues 26,750,594 37,539,442 28,344,230 Cost of revenues (16,278,433) (22,419,714) (18,547,320) Gross profit 10,472,161 15,119,728 9,796,910 General & administrative expenses (4,925,418) (7,728,079) (6,223,014) Selling & distribution expenses (1,765,423) (2,024,959) (1,933,431) Management fees (1617,315) (1,764,999) (1,242,870) Net income 2,534,422 2,725,286 (281,634) Financial Condition Current assets 10,841,067 10,544,552 7,651,866 Property & equipment 22,119,428 28,481,550 28,642,161 Total assets 33,012,207 39,965,931 38,261,549 Current liabilities 8,343,582 14,804,677 14,792,004 Total liabilities 17,768,785 26,292,031 27,312,935 Shareholders equity 15,243,422 13,673,900 10,948,614 Key Indicators Gross profit margin 39.1% 40.2% 34.6% Net profit margin 9.5% 7.3% (0.99%) Current ratio (times) Total liabilities to total assets 53.8% 65.8% 71.38% Total liabilities to equity 116.6% 192.3% % Return on equity 16.6% 20.0% (2.57%) Return on assets 7.7% 6.8% (0.74%) Revenue growth rate (28.7%) 32.4% 2.69% Earnings growth rate (7.0%) % (108.9%) Source: Audited Financial Statements of Advanced Medical Projects 18

40 The Company Provided below is a summary of Advanced Medical Projects Company s employees: Exhibit 3 14: Breakdown of Advanced Medical Projects Company Employees Senior management Doctors Saudi Non-Saudi Total Nurses & Technicians Administrative Senior management Doctors Nurses & Technicians Administrative Senior management Doctors Nurses & Administrative Technicians 31 Dec Dec Dec Dec Source: Mouwasat The Saudization rate of Advanced Medical Projects Company was 19.4% as of 31 December Advanced Medical Projects Company is managed by a committee of 4 members, 2 from each owner. The committee manages the company and is composed of: Total Mr. Nasser Sultan Al-Subaie (Vice Chairman of Mouwasat), for Mouwasat; Mr. Mohammad Suliman Al-Saleem (Managing Director of Mouwasat), for Mouwasat; Mr. Motasem Mohamad Reda, for Al-Maghrabi Hospitals Company; Mr. Mansour Hazem Al-Omari, for Al-Maghrabi Hospitals Company. AMPC owns Al-Maghrabi Centers for Eye and ENT in Dammam, Al-Ahsa, and Al-Khobar. AMPC manages these centers as part of a contract in exchange for a fixed percentage of net income. For more information, please refer to the Legal Information section. 3.8 Related parties On 29 Rabi Athani 1425H (corresponding to 17 June 2004G), the Company transferred a number of entities to Mouwasat International Company Limited, which is owned by Mr. Mohammad Sultan Al-Subaie, Mr. Nasser Sultan Al-Subaie, and Mr. Suleiman Mohammad Al-Saleem. The value of the transfer was SAR 3,350,000. Mouwasat International Company is a Saudi limited liability company with commercial registration number dated 6 Sha aban 1425H (corresponding to 21 September 2004G) with a share capital of SAR 4,800,000 divided into 4,800 shares of SAR 1,000 each. Mouwasat International Company is a related party and Mouwasat does not own any shares in Mouwasat International. This related party has several branches, which include: Mouwasat Travel and Tourism; United Diagnostic Industry: which produces chemical re-agent products pursuant to industrial license number 1980-S dated 24 Thul Qa dah 1426H (corresponding to 26 December 2005G); Mouwasat Stainless Steel Factory; Mouwasat Trading and Contracting; United Medical Services: which is engaged in the retail and wholesale of medical appliances and equipment; and Mouwasat Applied Science Institute: which provides diploma programs in nursing, laboratory, and radiology pursuant to Saudi Commissions for Health Specialists license number 1355-D dated 12 Rabei Alawal 1427H (corresponding to 11 April 2006G). 3.9 Mouwasat Clients The clients to whom Mouwasat provides healthcare services are one important element amongst its strengths. The Company provides a complete range of healthcare services to Saudi Aramco under a 5-year renewable contract. In addition to Saudi Aramco, the Company has contracts with Tawuniya to provide healthcare services to SABIC employees throughout Saudi Arabia and provides healthcare services to Saudi Electricity Company as well. Furthermore, the Company provides healthcare services to the clients of all insurance companies that are approved by the CCHI. According to Company s estimation, 30% of its resources are allocated to serve walk-in patients (cash patients). Mouwasat has established its presence as a major provider of healthcare services in the Eastern Province. Since 2001, the Company has expanded its facilities to provide healthcare services to the larger population of Saudi Arabia. The Company has been providing services to a number of prominent clients, many of whom are under the insurance network, while others have contributed directly to the success of Mouwasat. The following customers are among Mouwasat s prominent clients: 19

41 The Company Saudi Aramco; SABIC - global country-wide contract through Tawuniya (the contract covers all domestic employees); The National Company for Co-Operative Insurance ( Tawuniya ); a Saudi flagship insurance company with a wide network covering a very large number of insured persons; Saudi Oger King Fahd Complex for the Printing of the Holy Qur an; Government Organization for Social Insurance ( GOSI ); Saudi Telecom (through Tawuniya); British Aerospace (through Tawuniya); All banks in Saudi Arabia; Saudi Arabian Airlines; Saudi Electricity Company (SEC); All insurance companies that are approved by the CCHI; and Arabian Oil Company AlKhafji joint operation Saudi Aramco Mouwasat provides healthcare services to approximately 19,130 registered beneficiaries from Saudi Aramco at Dammam hospital as of 31 Dec 2008 and 6,190 registered beneficiary at Al-Qatif hospital as of the same date after a strategic decision taken by Saudi Aramco to transfer healthcare responsibility of its employees and their families, totalling approximately 300,000 people to the private sector. Mouwasat Hospital in Dammam provided healthcare services to Saudi Aramco s employees and their dependents. As a result, Saudi Aramco has entered into a number of contracts with Mouwasat. The first contract Saudi Aramco awarded to the Company commenced from January 1996 for a period of three years, which was later extended for 2 years and three months. The second contract commenced from April 2001 for a period of 5 years and has been extended until the end of June SABIC The Company also has agreements to provide healthcare services to SABIC. The significance of SABIC is evident from the fact that Mouwasat Hospital in Jubail caters almost exclusively to SABIC affiliates, while the decision to expand the dispensary at Jubail to a hospital was due to increasing demand from SABIC beneficiaries The Company s Mission and Vision Mission The Company is dedicated to delivering world-class medical services to both internal and external customers giving an unwavering commitment with a continuous improvement of medical services, staff expertise, team work, innovation, and vision for the future Vision Using the latest technology, evidence based practice, and joint cooperation with international medical systems, the Company will continue to provide distinguished healthcare services. 20

42 4 Market Overview The Company has appointed Gulf Consulting House ( GCH ) to conduct a market study covering the healthcare sector in Saudi Arabia. GCH is a consulting firm specializing in corporate finance, economic research, feasibility studies, and other advisory services. It was founded in April 1996, and today operates in Saudi Arabia, the Kingdom of Bahrain, and Palestine. GCH currently employes 20 staff members, most with extensive experience in reputed firms on the local and international level. GCH is the source of the information and data provided below. GCH has provided and not withdrawn its written consent for the use of its report in this Prospectus. GCH does not have any shares or interest in the Company or any of its affiliates or of its related parties. The information provided in this section and in the Market Report was prepared on March 2007, therefore, does not reflect market developments since the date of the report. The report includes statistics covering the period up to 2007 and was not updated to cover recent developments in the market. 4.1 Introduction In 2006, the population of Saudi Arabia was estimated around 24.5 million, and the population growth rate for the next five years is estimated to be approximately 3.1%. The population growth rate drives demand for healthcare services in Saudi Arabia. 13 The Ministry of Health ( MoH ) is the regulatory body of the healthcare sector and the major provider of healthcare services in Saudi Arabia. It manages a network of primary healthcare centers in addition to general and specialized hospitals. The healthcare network of the MoH uses a referral system in which patients requiring minor care use primary healthcare centers and those requiring secondary or tertiary care are transferred to either general or specialized hospitals. The standards of the services provided by the MoH healthcare facilities are highly affected by Government funding. In addition to healthcare services provided by the MoH, quasi-government providers cater directly to their beneficiaries and, under special circumstances, to other patients. The National Guard, Ministry of Interior, Ministry of Education, Royal Commission for Jubail and Yanbu, Ministry of Defense and Aviation, King Faisal Specialist Hospital and Research Centre, and Riyadh Care Hospital are examples of Government agencies that operate hospitals and medical centers catering to their beneficiaries and selected group of referral patients. The private healthcare sector has emerged during the last decade as a dominant segment within the healthcare providers in Saudi Arabia. It initially targeted higher income Saudi nationals and expatriate employees, initially competing with Government healthcare facilities on the quality of services. The market share of private healthcare providers has witnessed a continuing increase as a result of the growing overall demand for healthcare services. During 1999, the Government introduced according to the Royal Decree number M/10 dated 1/5/1420H (corresponding to 13/8/1999G) and Council of Ministers resolution number 71 dated 27/4/1420H (corresponding to 11/8/1999G) the Cooperative Health Insurance 14 Act for expatriate employees and formed the Council of Cooperative Health Insurance ( CCHI ) to regulate and implement this act. In 2005, the Ministry of Health issued the implementing regulations to impose the insurance scheme whereby both the companies and employees share the cost of insurance. The insurance scheme imposed by Cooperative Health Insurance Act is now applicable and it was enforced in three phases. The first phase required companies with more than 500 expatriate workers to provide medical insurance coverage for their employees. The second phase became effective in 2007 and covered companies with 100 to 500 expatriate workers. The third phase covered companies employing less than 100 expatriates. It is expected that compulsory health insurance will eventually cover all Saudis. The introduction of compulsory insurance is expected to increase the size of the private sector healthcare market, as all foreign workers, especially those who currently do not have access to healthcare would become eligible for medical coverage. As of August 2006, 262,055 employees were insured after the introduction of Cooperative Health Insurance Act. 13 Source: Gulf Consulting House 14 Source: The Company 21

43 Market Overview 4.2 Market Analysis In 2008, the Government budgetary allocation to the MoH reached SAR 25 billion an increase of 8.7% from previous year. On average, the Government has been allocating 8.07% of the budget to healthcare expenditures from 1998 to Exhibit 4 1: Budget and Allocation to MoH (SAR Billion) Year Total budget Allocation to MoH (SAR Percentage to Total (SAR Billion) Billion) Source: GCH, the Company The Saudi Government supports investors in the healthcare sector through the provision of interest free financing. The Ministry of Finance ( MoF ) provides financing for setting new private hospitals of up to 50% of the project cost, subject to a maximum of SAR 50 million per project. The role of the private sector in the Saudi healthcare market is progressively growing. In 1996, there were 303 hospitals in the Kingdom, 84 of which were private. By the year 2007, 84 more hospitals were added Kingdom-wide. The private sector accounted for 123 hospitals of the total number of 387 hospitals, which reflects an increase of 39 additional hospitals. Exhibit 4 2: Number of Hospitals by Provider Hospital Public sector Private sector Total Percentage of total Public sector 72% 72% 72% 71% 71% 70% 69% 69% 69% 68% 67% 68% Private sector 28% 28% 28% 29% 29% 30% 31% 31% 31% 32% 33% 32% Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Annual growth rate Public sector % 1.81% 0.89% 1.32% 0.87% 0.86% 2.56% 4.58% 1.99% 1.95% 1.14% Private sector % 2.30% 2.23% 3.30% 5.32% 6.06% 4.76% 2.73% 8.85% 4.07% (3.9%) Total % 1.95% 1.27% 1.89% 2.16% 2.42% 3.24% 4.00% 4.12% 2.64% (0.5%) Source: GCH, the Company In addition, dispensaries, healthcare centers, and private clinics were 3,201 in 1996 of which 45% was provided by the private sector. The number has increased to 4,241 in 2007, 52% of which was provided by the private sector. 22

44 Market Overview Exhibit 4 3: Dispensaries, Healthcare Centers, and Private Clinics by Provider Outpatient clinics Public sector 1,776 1,782 1,796 1,811 1,801 1,831 1,859 1,915 1,953 1,992 2,017 2,047 Private sector 1,425 1,457 1,477 1,566 1,571 1,611 1,909 1,986 2,044 2,085 2,113 2,194 Total 3,201 3,239 3,273 3,377 3,372 3,442 3,768 3,901 3,997 4,077 4,130 4,241 Percentage of total Public sector 55% 55% 55% 54% 53% 53% 49% 49% 49% 49% 49% 48% Private sector 45% 45% 45% 46% 47% 47% 51% 51% 51% 51% 51% 52% Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Annual growth rate Public sector % 0.79% 0.84% -0.55% 1.67% 1.53% 3.01% 1.98% 2.00% 1.26% 1.49% Private sector % 1.37% 6.03% 0.32% 2.55% 18.50% 4.03% 2.92% 2.01% 1.34% 3.83% Total % 1.05% 3.18% -0.15% 2.08% 9.47% 3.53% 2.46% 2.00% 1.30% 2.69% Source: GCH, the Company In terms of inpatient beds, there were 44,214 beds in 1996, 19% of which were provided by the private sector. By the year 2007, the number of beds reached 53,519, 21% of which were provided by the private sector. Exhibit 4 4: Hospital Beds by Provider Hospital beds Public sector 36,029 36,547 36,960 37,031 37,511 37,677 38,123 39,051 39,992 40,645 41,194 42,248 Private sector 8,185 8,485 8,765 8,885 9,106 9,337 8,954 10,134 11,136 12,547 13,174 11,271 Total 44,214 45,032 45,725 45,916 46,617 47,014 47,077 49,184 51,128 53,192 54,368 53,519 Percentage of total Public sector 81% 81% 81% 81% 80% 80% 81% 79% 78% 76% 76% 79% Private sector 19% 19% 19% 19% 20% 20% 19% 21% 22% 24% 24% 21% Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Annual growth rate Public sector % 1.13% 0.19% 1.30% 0.44% 1.18% 2.43% 2.41% 1.63% 1.35% 2.55% Private sector % 3.30% 1.37% 2.49% 2.54% -4.10% 13.17% 9.90% 12.67% 5.00% (14.45%) Total % 1.54% 0.42% 1.53% 0.85% 0.13% 4.48% 3.95% 4.04% 2.21% (1.56%) Source: GCH, the Company Moreover, there were 95 million visits to outpatient clinics in 1996, 15% of which were visits to the private sector. In 2007, the total visits increased to 122 million, 35% of which were visits to the private sector. Exhibit 4 5: Outpatient Clinics Visits by Provider Outpatient clinics Visits (millions) Public sector Private sector Total Percentage of total Public sector 85% 84% 83% 81% 81% 81% 80% 80% 80% 72% 70% 65% Private sector 15% 16% 17% 19% 19% 19% 20% 20% 20% 28% 30% 35% Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Annual growth rate Public sector % 0.00% -4.94% 1.30% 0.00% 5.13% 6.10% 5.75% % 0.00% 6.76% Private sector % 13.33% 5.88% 0.00% 0.00% 11.11% 10.00% 4.55% 26.09% 6.90% 38.70% Total % 2.08% -3.06% 1.05% 0.00% 6.25% 6.86% 5.50% % 1.94% 16.19% Source: GCH, the Company 23

45 Market Overview In terms of inpatients, there were total hospital admissions of 2 million in 1996, 22% of which were made to private healthcare providers. In 2007, the inpatient admissions increased to 2.8 million; 23% were made to private healthcare providers. Exhibit 4 6: Inpatient Admissions by Provider Inpatient admission (thousands) Public sector 1,553 1,568 1,585 1,530 1,580 1,656 1,706 1,733 1,744 1,768 1,794 2,138 Private sector Total 1,999 2,031 2,019 1,973 2,030 2,104 2,141 2,220 2,262 2,285 2,457 2,791 Percentage of total Public sector 78% 77% 79% 78% 78% 79% 80% 78% 77% 77% 73% 77% Private sector 22% 23% 21% 22% 22% 21% 20% 22% 23% 23% 27% 23% Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Annual growth rate Public sector % 1.08% -3.47% 3.27% 4.81% 3.02% 1.58% 0.63% 1.38% 1.47% 19.18% Private sector % -6.26% 2.07% 1.58% -0.44% -2.90% 11.95% 6.37% -0.19% 28.24% (1.51%) Total % -0.59% -2.28% 2.89% 3.65% 1.76% 3.69% 1.89% 1.02% 7.53% 13.59% Source: GCH, the Company 4.3 Competition Mouwasat has established hospitals and dispensaries in major cities of the Kingdom, with its early presence in the Eastern Province since The Company s network now covers Dammam, Al-Qatif, Jubail, Al-Ahsa, Al-Khobar, Riyadh, and Madina. The market share of Mouwasat in the areas where the Company operates is as follows: Exhibit 4 7: Market Share as of 2006 by Area Dispensaries, Healthcare Centers, and Private Clinics Sector Eastern Province Area 11% Madina Area 25% Riyadh Area 15 4% Inpatient Sector Eastern Province Area 15% Madina Area 14% Riyadh Area 4% Source: GCH Exhibit 4 8: Market Share as of 2006 by City Dispensaries, Healthcare Centers, and Private Clinics Sector Dammam 13% Jubail 86% Al-Ahsa 19% Madina 38% Riyadh 3% Inpatient Sector Dammam 44% Jubail 64% Madina 35% Riyadh 8% Source: GCH 15 Through Najd Consulting Hospital 24

46 5 5.1 Competitive Advantages, Future Plans and Prospects Competitive Advantages The management of the Company believes that Mouwasat has a number of competitive advantages and value added benefits that distinguish its services from its competitors including the following: Focused Business Strategy The Company has a thorough understanding of Saudi Arabia s healthcare market potential and requirements, together with a focused business strategy to serve customer segments. This is being achieved through increased emphasis on operational efficiency and effectiveness Good Profitability Level and Stable Financial Position Given the steady growth and profitability of the Company and its stable financial position, together with its strategic plan based on accurate understanding and analysis of the market, the Company has planned to establish a wide medical network that covers several geographic areas and several cities within the same area to consolidate its presence in the market of medical services Favorable Economic and Business Environment The economic environment within which the Company operates is favorable in terms of its population growth rate of 3.1% 16 and increasing demand for medical services. Government authorities provide financial support to the private sector, such as an interest-free loan that covers 50% of setup costs to a maximum of SAR 50 million and with a 4 year grace period 17, encouraging further increase in contribution to the national economy in general and promoting the standard of medical services. The Company is highly dedicated with its available resources to utilize such favorable economic conditions Strong Reputation The Company has successfully built a strong reputation over the past three decades due to the high quality medical services provided to its individual and corporate customers. This has contributed to its strong growth in revenues and high profitability. This is evident by the fact that the Company is retaining its existing clients and is attracting new clients. The Company has internal performance indicators related to its ability to retain customers for each medical center including its hospitals and dispensaries. The Company also complements its internal performance indicators with external feedback from patients and takes all complaints very seriously Wide Client Base Saudi Aramco has been Mouwasat s client since The client list of Mouwasat also includes SABIC group of companies, General Organization of Social Insurance, Saudi Electricity Company, a number of major insurance companies operating in Saudi Arabia, Saudi Arabian Airlines, cement companies, Saudi Aramco refinery in Jubail, and others Developed IT Systems Supported by Qualified Technical and Management Staff The Company applies an integrated information system that it constantly develops to support its operations and provide the Management with required information and reports to enhance performance and strategic decision making. The Company possesses advanced technology systems and has a high caliber technical staff with international standard experience in all areas of the management of hospitals and medical services. The management team of the Company has extensive experience in all areas and businesses of the Company. Mouwasat operates within a series of technical and management regulations and procedures that ensure optimum utilization of available resources and achievement of best results based on highly effective performance standards, indicators, and implementation potential Joint Cooperation Agreements The Company has had joint cooperation agreements with a number of major international medical centers, which have substantial impact on improving the medical services provided by the Company to match those of international hospitals and medical centers. For more information, please refer to the Legal Information section Continuous Efforts to Become an Internationally Accredited Medical Center The Company has sought to obtain the necessary international accreditation of its hospital network including JCI for quality assurance. The Company has already obtained the first accreditation for its hospital in Dammam from JCI in In addition to the Dammam hospital, Al-Qatif hospital obtained the JCI accreditation in late 2008, while the Jubail hospital obtained the accreditation in April Work is ongoing for the accreditation of the Company s other hospitals. 16 Source: GCH 17 Source: GCH 25

47 Competitive Advantages, Future Plans and Prospects Comprehensive Services The Company provides a wide range of medical services that ensure quality of services to its customers, which consequently supports the Company s capability to achieve stable income rates External Contacts Network The Company has in place a wide external contacts network covering most Arab countries, Europe, Africa, and Canada, which has helped the Company in the recruitment of qualified human resources to work in its medical network. Ain Shams University, Egypt; King Hussein Medical City, Jordan; Royal Hospital for Sick Children NHS Trust Glasgow, UK; Montreal University, Canada; Parkway Health Care Eagle Glen Hospital, Singapore Extensively Experienced Management Team The management team of the Company has: 5.2 high qualification and competence in future planning in respect with the future demand for medical services; high capability in management of the medical network to ensure high quality of services provided; extensive experience in the area of financial and information systems that widely help the management with planning and control programs; and High capability of utilizing the modern facilities and methods in preparing estimates of the market volume and contribution percentage in both the short and long terms of the medical networks. Future Plans In order to achieve its goals, the Company plans to improve the way care is provided as part of the local health community. Some of the areas where changes are expected to occur are developing closer partnerships with other organizations in order to pursue a whole community approach to healthcare; offering the facility for all non-emergency patients to agree to a hospital appointment at their convenience; expanding the number of physicians, nurses, and allied health professionals as well as extending roles to develop multi-disciplinary treatment pathways. The Company s future plans include the following key targets to be achieved over the next five years: Provide a complete range of primary health care services to the community; Obtain and maintain JCI accreditation for all hospitals; Provision of pharmaceutical services with a regional reputation in quality; Expansion of services to become the leading health care provider in the region; Prepare the organization for a paperless system; Increase the Company s market share of the healthcare services market by 5% relative to the current market share of 11%, 25%, and 4% of the outpatients and 15%, 14%, and 4% of the inpatients in Eastern Province, Madina, and Riyadh respectively, (for more information, please refer to the Market Overview section; Improve financial monitoring; Attract and retain qualified staff. 5.3 Future Prospects In order to achieve the Company s future plans and meet the increasing demand for healthcare services in the Kingdom, the Company has plans to expand its current facilities and to establish new facilities in high potential areas as well as to offer new healthcare services. The following summarizes the key projects that the company is undertaking: Construction of a new hospital in Riyadh with a capacity of 175 beds and 65 outpatient clinics upon completion of the project. Initial commencement of the project is expected to be in This new hospital will have an area of around 40,000 m2. The Company has already identified and acquired the land on which the hospital will be built, and has already received approval from the Ministry of Health to build the new hospital; Establishing a dispensary in Dammam. The dispensary s area will be around 4,000 m2. The Company has already identified and acquired the 3,000 m2 land on which the hospital will be built, and has already received approval from the Ministry of Health to build the dispensary. 26

48 6 Operational and Support Functions Mouwasat has developed an efficient operational and support structure with ten departments that manage the Company s operations and provide support to the Company s hospitals, dispensaries, and pharmacies. The management of each department consists of a team of experienced and capable professionals, who report either to the Vice-Chairman, Managing Director or Deputy Managing Director. The ten departments of the Company are: Medical Affairs and Performance Management Department; Facility Management and Safety Department; Support Services Department; Pharmaceutical Department; Purchasing Department; Finance and Administration Department; Internal Audit Department ; Human Resources Department; Information Technology Department; Marketing and Promotion Department. The finance and administration, medical affairs, and performance improvement departments report to the Vice-Chairman. The internal audit department reports directly to the Board of Directors. The purchasing, human resources, and pharmaceutical departments report to the Managing Director whereas the marketing and promotion, information technology, support services, facility management, and safety departments report to the Deputy Managing Director. Exhibit 6 1: Organizational Chart Board of Directors Vice-Chairman Nasser Sultan Al-Subaie Internal Audit SaqrAl-Araj Managing Director Mohammed Suliman Al-Saleem Deputy Managing Director Khalid Suliman Al-Saleem Purchasing MarwanKhatib Human Resources Khalid Al-Subaie Pharmaceutical Ahmed Touman Performance Improvement Eman Darweesh Finance & Administration MahmoudShurrab Medical Officer & Chief of Surgery Omar El-Sharif Marketing & Promotion IsamAssaf Information Technology WaelHaddad Support Services Facility Management & Safety UdayNair Madinah Hospital Najd Consulting Hospital Riadh Operated by Mouwasat Jubail Hospital Dammam Hospital Qatif Hospital Dammam Dispensary Al-Ahsa Dispensary Pharmacies Source: Mouwasat Medical Affairs and Performance Management Department Medical Affairs Division The objectives of the Medical Affairs division are to ensure that patients receive medical care and utilize the available resources with achievable goals. The main responsibilities of the Medical Affairs division are as follows: Identify internal and external customers of individual departments; Identify, evaluate, and implement the scope of service, practice, and governance of the individual departments; Identify key functions and processes of each department; Develop and implement department plans to establish standards by which performance can be evaluated to provide a sense of direction for each department by assigning responsibility and accountability for structure, process, and outcomes; Develop and implement targets for each of the standards; 27

49 Operational and Support Functions Collect data required by performance improvement division to allow quality control for performance improvement in each department; To support the performance improvement division in their data collection and other activities; Help formulate, introduce, and review policies and procedures regarding performance improvement; Monitor compliance with the performance improvement policies and procedures; Ensure that the best practices and regulations internationally recognized are taken into account when formulating and approving policies and procedures regarding performance improvement; and Ensure educational programs are valid with regard to current research and comply with international laws and regulations regarding safe practice Performance Improvement Division The main responsibilities of the Performance Improvement division are as follows: To establish a comprehensive organization-wide improvement mechanism to maintain and improve the quality and safety of healthcare within the limitations of available resources and achievable goals; To provide a structure for coordinating and integrating the quality and safety improvement responsibilities of all professional, managerial, technical, and support staff in order to increase effectiveness, eliminate duplication of efforts and promote efficient utilization of staff and resources; To promote the provision of a comparable level of care and safety throughout Mouwasat hospitals and dispensaries; To integrate, analyze, and direct actions, based on information derived from sources and functions within Mouwasat hospitals and dispensaries, to improve the structure, system, and processes that affect patient care and safety, and service delivery throughout Mouwasat hospitals and dispensaries; To utilize external information sources representing Best Practices and Standard of Care in the design of system to improve service delivery outcomes. This includes incorporating the standard requirements of the Joint Commission International; To direct and promote the implementation of Mouwasat s performance improvement model, Plan Do Check Act (PDCA); To assess and modify the performance improvement program, when necessary, to encourage better identification and resolution of challenges that significantly impact service delivery; and To provide complete, pertinent, and timely information to the Performance Improvement Committee to assist in the fulfillment of their responsibilities for quality/safety improvement commitment, prioritization, management, and oversight. The Performance Improvement division works with the purpose to track, analyze, educate, and develop activities and data for the performance improvement and patients safety concerns of the Mouwasat hospitals and dispensaries. 6.2 Facility Management and Safety Department The main responsibilities of the Facility Management and Safety department are as follows: 6.3 To identify, assess, reduce, and control environmental hazards and risks including planning, educating, and monitoring; To prevent and control loss to the healthcare organization, its patients, visitors, volunteers, physicians, other healthcare professional, and employees; To maintain risk management statistics and files in compliance with accreditation requirements of the Joint Commission and other recognized agencies; To develop/coordinate and administer facility wide system for risk identification, investigation, and reduction; To perform risk surveys, inspect patient care areas, review facility and assess loss potential; To develop a special system through which reports related to unexpected events or complaints about the Company s facilities are raised; To implement system that analyzes and provides information about patients safety and medical malpractice; and To participate in root cause analysis and investigation and to report adverse drug events to the appropriate parties. Support Services Department The Support Services department consists of three units; dietary, laundry and housekeeping units. The main responsibilities of each are as follows: 28

50 Operational and Support Functions Dietary Unit The main responsibilities of the Dietary unit are as follows: To provide the best nutrition care to patients; To educate and promote nutrition awareness; To continuously improve the patient care process in a cost effective manner; To educate, assess, and reassess patients needs; To participate in the multidisciplinary activities (clinical rounds, discharge planning, and case review); and To plan menu and meal evaluation Laundry Unit The main responsibilities of the Laundry unit are as follows: To provide cleaning of hospital linens, staff uniforms, lab coats, and tailoring services to meet the needs of the patients and staff; To remove dirt or soiling matter from fabrics without damage; To segregate the contaminated from non-contaminated linen; To maintain the protection of laundry equipment; To clean, handle, store, and transport linen according to proper protocols to minimize contamination from surface contact or airborne deposition; To ensure proper mixing and identification of cleaning solutions; To render tailoring services for the linen, staff uniforms, curtains, and furniture; To ensure storage of cleaning solution and chemicals; and To ensure disinfection of linens Housekeeping Unit The main responsibilities of the Housekeeping unit are as follows: 6.4 To create safe and healthy environment surfaces which comprises walls, counters, and furniture table tops; To use appropriate cleaning and disinfecting strategies for environmental surfaces in patient care areas; To follow manufacturers cleaning instructions and recommendations procedures; To keep environmental surfaces (e.g. floors, walls, tables tops) visibly clean on a regular basis or as spills occur; To use a one step process and water/detergent or an Environmental Protection Agency registered hospital grade disinfectant/detergent; To clean and disinfect high-touch surfaces (e.g. doorknobs, bedrails, light switches, surfaces in and around toilets in patient room) on a more frequent schedule; To eliminate airborne transmission in operating and delivery rooms; and To clean ambulance cars in and out as per standard guidelines. Pharmaceutical Department The main responsibilities of the Pharmaceutical department are as follows: To ensure that the inpatient pharmacy facilities are provided with the required services in the setting of the hospital s commitment to keep pharmacy standards up to the current quality requirements; To utilize the department staffs professional judgment and extend their responsibilities to include participation in programs with the safe handling of medication throughout the hospital, while working with other member of the healthcare team; To participate in medication use, review, and patient care audits; To provide safe and effective use of medicines in the hospitals; To ensure the department s staff legitimate role in each step of medication therapy in the hospital, which includes the promotion of rational therapeutics and improvement of patient care; To implement a clinical intervention program and redefine the role of pharmacists in minimizing preventable adverse drug events and applying cost-effectiveness drug therapy; and To facilitate discharge planning by arranging meeting with patients family to discuss patient s medical condition and home situation. This will help in reducing the risk of deterioration of patient s condition and the chance of readmission with similar diagnoses. 29

51 Operational and Support Functions 6.5 Purchasing Department The main responsibilities of the Purchasing department are as follows: To streamline the ordering process of supplies which will be used in the department (e.g., Nursing, Medical, Support Services departments); To process requests for new non-stock items by new, permanent or locum staff; To ensure efficient utilization of new materials requested by medical staff; To provide all units with the necessary materials to assure continuity of quality care; To provide staff members with the supplies essential to perform their duties; To establish procedure for obtaining required materials from the warehouse outside of normal working hours, on holidays, and Fridays; To assist in the procurement of all necessary materials to meet the operational needs of the hospital; To purchase materials from any technically qualified vendor or manufacturer; To receive ordered materials from the manufacturers and record them on the computerized inventory record system and store accordingly at optimal storage condition with regards to temperature and humidity; To provide a process for inventory evaluation and control; and To provide the units with an automated system for monitoring the expiry dates of the unit medical supplies and the pre-packages supplies. 6.6 Finance and Administration Department The main responsibilities of the Finance and Administration department are as follows: 6.7 The department is responsible for all matters related to the financial liabilities of the Company; To establish a comprehensive and well-defined accounting practices to ensure proper recording of all transactions of business; To provide all the concerned stakeholders a full and fair picture of the transactions the Company entered into; To administer the timely state of affairs for the concerned parties for all financial proceedings in the Company s business; To align the financial discipline with the current and possible future market practices of Company; To ensure the accounting transactions are performed in line with the Saudi Accounting standards; To submit reports to the Company s management; and To submit reports annually to identify indicators for management. Internal Audit Department The Internal Audit department follows an independent internal audit practice. The department has spread its activity all over the Company s departments and units. The department functions autonomously and reports directly to the Board of Directors. The department plays a crucial role in many aspects of the business and aims to achieve the following: Ensure that the Company s policies and procedures have been put in operation with major focus on transactions having financial and administrative implications; Ensure that internal policies and procedures relevant to financial tasks have been put into operation, primarily payroll, inventory management, revenue capturing, pricing applications, receivables and payables control, and general ledger accounting process; Ensure that financial books are closed on monthly basis at stipulated dates; Liaison with external auditors at corporate level for completion of audit and ensure recommendations are taken into consideration all over the Company; Prepare budgets at unit level, have alignment at corporate level, and ensure the proper practice of the budget; Report on a monthly basis to the Board of Directors on significant areas of variances and importance from the administrative and financial implication point of view as to ensure that financial results are in alliance with the projections; and Participate in analysis of utilization of resources. 30

52 Operational and Support Functions 6.8 Human Resources Department The main responsibilities of the Human Resources department are as follows: To employ qualified, well-trained, and experienced medical, nursing, paramedical, and administrative staff; To develop job descriptions for all categories which are reviewed periodically; To develop and maintain a decentralized staff scheduling system; To establish a communication system based upon the organizational chart reporting relationship; To ensure hospital information is disseminated to all new arrivals through an orientation program; To conduct periodic performance evaluation through heads of department with main focus on strengths and weaknesses of employees; To maintain a record and conduct 90-days probationary evaluation (performance appraisal); To perform credentialing by way of contacting the individuals, authorities, and institutions in order to be able to ensure the authenticity of the submitted certificates and testimonials; To ensure that all the medical nursing staff are properly licensed to practice their duties; To ensure compliance with Saudization requirements as stipulated by respective governmental bodies; To maintain confidentiality of the employees personnel data using OASIS Personnel Module and Mouwasat policy and procedure; and Prepare and maintain salary tables Information Technology Department Responsibilities and Objectives The Information Technology ( IT ) Department of Mouwasat is considered an integral part of the Company s operational efficiency. The main responsibilities of the IT Department is to develop and update the Company s management information plan, manage and upgrade the information systems, manage information in order to improve hospital performance in patient care, governance, and support management process by providing and designing information to be accurate, reliable, timely, and above all easily accessible to produce high quality information. The main objectives of the IT Department are to reduce medical errors and improve patient safety, reduce duplication and patient waiting time, adopt a paperless environment, accelerate the adoption of information technology, improve the human and technological infrastructure and assess the data captured and collected as well as to guarantee confidentiality and security of patient health information Information System Modules / Programs The following represents the Company s information system modules. Administrative & Personnel Modules / Programs: The administrative and personnel modules consist of system setup & security, personnel records, payroll system, staff scheduling, and checklists modules. Financial Modules / Programs: The financial modules consist of patient order processing (billing), patient contracts, stores / inventory management, purchasing, patient account, accounts payables, cash book, general ledger, budget, and fixed assets modules. Patient Modules / Programs: The patient modules consist of patient master index, medical records, accident and emergency, clinics/outpatient department scheduling, in-patient management, and planned admission modules. Doctor desktop and dietary modules implementation is currently in process. Departmental Modules / Programs: Apart from the above modules, the departmental modules ensure independent modules for departments like radiology, pharmacy, operating room, delivery room, endoscopy, laboratory, and biomedical maintenance modules Disaster Recovery Plan Over time, IT services have become critical to performing the mission of Mouwasat. As a result of this ever-increasing reliance on technology, IT services require a comprehensive disaster recovery plan to assure these services can be reestablished quickly and completely in event of a disaster. The primary objective of the Company s disaster recovery plan is to help ensure Mouwasat business continuity by providing the ability to successfully recover computer services in the event of a disaster. 31

53 Operational and Support Functions The disaster recovery action plan is composed of a number of sections that document resources and procedures to be used in the event of a disaster affecting computing and networking services. Each supported computing platform has a section containing specific recovery procedures. Systems are regularly backed up on a seven day schedule Saturday through Friday. Backups are a daily procedure and the backup data is stored in a disaster proof location to recover in case a disaster happens. Mouwasat is currently using one of Oracle s most stable and advanced backup procedure called Recovery Manager (RMAN) as a primary backup and secondary backup system (export utility) Marketing and Promotion Department The Company s Marketing and Promotion department s main responsibility is to identify and target a specific segment of the local market. Efforts are initially concentrated to provide the best possible services in order to retain customers. Once an identified segment is captured, efforts are then focused on increasing the existing customer base as well as identifying new segments to achieve growth and to diversify customer base. The Company has successfully identified new locations, new specialties, and new target markets due to successful market analysis. Marketing and promotion efforts of the Company include a pricing strategy. Since 1997, the Company has initiated a package deal for the most common surgical services and deliveries. These prices are approved by the management and are considered as general package deals. Currently Mouwasat Hospital in Dammam has general package deal prices for 50 of the most common procedures. New package deals are created based on demand and their prices reflect the cost of offering the relevant services. 32

54 7 7.1 Corporate Structure Directors The Company s Board of Directors (the Board ) is currently comprised of 8 members. The Company intends to apply to the Ministry of Commerce and Industry to convene an Extraordinary General Assembly approving to increase the composition of the Board to 9 members. The following is a brief description of each of the Board members: Exhibit 7 1: Mouwasat Board of Directors Name Title Shares Ownership 18 Status Mohammed Sultan Al-Subaie Chairman 6,250, % Not independent and non-executive Nasser Sultan Al-Subaie Vice Chairman 6,250, % Not independent and executive David Anthony Price 19 Member 2,500, % Not independent and non-executive Abdulaziz Saad Al-Mangoor Member 267, % Independent and non-executive Ibrahim Hamad Al-Babtain Member 163, % 20 Independent and non-executive Mohammed Suliman Al- Member 1, % Not independent and executive Saleem Khalid Suliman Al-Saleem Member 1, % Not independent and executive Khalid Mohammed Al-Subaie Member 1, % Not independent and executive Vacant Member TBD TBD Independent and non-executive Source: Mouwasat Mr. Mahmoud Suliman Shurrab (Age 53; Jordanian) is the secretary of the Board and is not a shareholder in the Company Resumes of Directors The resumes of the Board of Directors members are illustrated below: Mr. Mohammed Sultan Al-Subaie: Age: 62; Nationality: Saudi; Position: Chairman; Education: He holds a certificate from the General Management Institute in Dammam (1977); Experience: Mr. Al-Subaie has been Chairman of the Board of the Company since its inception. Mr. Nasser Sultan Al-Subaie: Age: 54; Nationality: Saudi; Position: Vice-Chairman; Education: He holds a certificate in managing health organizations from California State University in USA and has attended numerous seminars and courses pertaining to managing health organizations during the period ; Experience: Was the health service manager for Haii clinics in Jubail between 1979 and 1988 for the Royal Commission project in Jubail and later joined Mouwasat as the general manager. He supervises the planning and implementation of the Company s projects. He is a member of the health committee of the Council of Chamber of Commerce in the Kingdom. He is also an active member of CCHI. Mr. David Anthony Price: Age: 45; Nationality: British; Position: Director; Education: He holds a Bachelor of Commerce degree from University of Western Australia (1985); Experience: He is an associate in the Institute of Chartered Accountants of Australia. Mr. Price has been a Managing Director of Private Equity for HSBC s private equity business for the Middle East since Previously, he held many positions such as a partner in Redwood Company for three years starting in 1998 and was the head of debt finance in Bahrain International Bank ( ). He has been involved in the structuring and managing of an investment in private equity transactions in both Europe and the Middle East for over 14 years. He represents Tala Trading WLL, Bahrain. 18 Directors shares and ownership prior the Initial Public Offering 19 David Price represents Tala Trading WLL, a shareholder with 2.5 million shares ownership prior to IPO 20 The indirect ownership of Ibrahim Hamad Al-Babtain is around 0.06% since he owns 2.43% of Al-Babtain Power & Telecommunication Company which owns 2.51% of Mouwasat. Therefore, his direct and indirect ownership amounted to 0.71% of Mouwasat s share prior to the offering. Other than Ibrahim, no member of the board has any indirect ownership in Mouwasat. 33

55 Corporate Structure Mr. Abdulaziz Saad Al-Mangoor: Age: 58; Nationality: Saudi; Position: Director; Education: He holds a BBA from the University of Washington Seattle, USA (1976); Experience: Mr. Al-Mangoor is the owner of Abdulaziz Al-Mangoor Trading Establishment which was established in 1978, and is the general manager of the Saad Saleh Al-Mangoor Trading Establishment. Mr. Al-Mangoor has been a member of the Board of Arabian Company for Pipes since 1996, and a member of the Trade Committee of the Chamber of Commerce and Industry of the Eastern Province since Mr. Al-Mangoor is also a former member of the Touristic Projects Company in 1990 and of Tarfeeh Company in Mr. Ibrahim Hamad Al-Babtain: Age: 42; Nationality: Saudi; Position: Director; Education: He holds a Diploma in Management from the Commercial Institute in Riyadh (1987); Experience: Mr. Al-Babtain has 19 years of experience in Al-Babtain Power & Telecommunication Company in different positions as purchasing manager, human resource manager, deputy general manager of engineering industries, general manager of Al-Babtain Carton Company, and Al-Babtain Engineering Industries. In 2003, He became a member of the Board of Al-Babtain Power & Telecommunication Company. Mr. Al-Babtain also served as member of metal Industries Committee at the Riyadh Chamber of Commerce between Mr. Mohammed Suliman Al-Saleem: Age: 43; Nationality: Saudi; Position: Managing Director; Education: He holds a Bachelor degree in Accounting from King Saud University (1989); Experience: He joined the Company in 1989 where he held various positions; Administrative Manager during the period , Executive Director during the period and the Managing Director since 2003 to date. He is a board member of Mouwasat International Company, a board member of Advanced Medical Projects Company, a member of the Board of Trustees of the Arabian Administrative Hospital Committee in UAE, and member of Arabian Human Resources Management Society. Mr. Khalid Suliman Al-Saleem: Age: 42; Nationality: Saudi; Position: Deputy Managing Director; Education: He holds a management diploma from Rice University, Houston, USA (1992); Experience: He joined the Company in 1993 as Deputy Administrative Manager. He has been the Deputy Managing Director since 2003 to date. He is currently a member of the Hospitals Committee in the Riyadh Chamber of Commerce. Mr. Khalid Mohammed Al-Subaie: Age: 29; Nationality: Saudi; Position: Director; Education: He holds a bachelor degree in marketing from Delmon University Bahrain (2006) and is now in the process of obtaining a Master degree in International Business from New York Institute of Technology on a part time basis; Experience: He joined the Company in 2002 as Human Resource Manager in Dammam hospital. 7.2 Senior Management Mouwasat s management is comprised of qualified and experienced members with necessary knowledge and expertise to run the Company s business. The Company is successful in retaining its senior management team and in developing qualified employees and promoting them to senior positions in the Company. The management of each department reports either to the Vice-Chairman, Managing Director or Deputy Managing Director. Provided below is a description: 34

56 Corporate Structure Exhibit 7 2: Mouwasat Senior Management Name Title Nationality Age Shares Ownership 21 Mohammed Suliman Al Managing Director Saudi 43 1, % Saleem Khalid Suliman Al-Saleem Deputy Managing Director Saudi 42 1, % Mahmoud Suliman Chief Finance & Administration Officer Jordanian Shurrab Saqr Mohammed Al-Araj Chief Internal Audit Officer Jordanian Marwan Toufiq Khatib Chief Central Procurement Officer British Omar Fadlalla El-Sharif Chief Medical Officer and Chief of Sudanese Surgery Eman Ahmed Darweesh Performance Improvement Manager Palestinian Therese Douchette Morien Chief Nursing Officer Canadian Uday Chandran Nair Chief Facility Engineer Indian Khalid Mohammed Al- Manager of Human Resources Saudi 29 1, % Subaie Isam Younis Assaf Marketing Manager Jordanian Wael Hanna Haddad IT Manager Jordanian Mushairy Mohammed Al- Administrative Manager Saudi 23 1, % Subaie Amin Mahmoud Nimer Chief Executive Officer - Dammam Jordanian Hospital Nasr Shafiq Boulos Chief Operating Officer - Riyadh Sudanese Hospital Mohammed Yosri Al- Chief Operating Officer - Madina Egyptian Farshooti Hospital Hisham Abdul Hady Chief Operating Officer - Al-Qatif Egyptian 49 Abdulfattah Hospital Adnan Soliman Khalil Chief Operating Officer - Jubail Syrian Hospital Osama Saber Mustafa Chief Medical Officer Dammam Egyptian Dispensary Nawwar Anwar Sa ad Chief Medical Officer - Al-Ahsa Syrian Aldein Dispensary Ahmed Abdulfattah Touman Chief Pharmacist Palestinian Source: Mouwasat Executive Management Committee The executive management of Mouwasat is spearheaded by an Executive Management Committee, the duties and responsibilities of which include the following: Approve operating policies; Approve the units strategic and operational plans; Approve the units operating budget and resource allocation; Assign Hospital Chief Operating Officer and approve the assignments of other key personnel; Review the performance improvement activities and patient safety efforts; Identify, evaluate, and implement the scope of services, practice, and governance of Mouwasat hospitals; Supervise the medical activities of the Mouwasat medical services. The Board appoints the chairman and members of the Executive Management Committee and specifies the number of committee members and the required quorum of meetings. In accordance with the directions and guidelines prescribed by the Board from time to time, this committee may exercise all of the powers authorized by the Board. The Executive Management Committee may not revoke or alter any of the resolutions adopted, or rules laid down, by the Board of Directors. 21 Senior Management s shares and ownership prior to the Initial Public Offering, none of them have any direct investment in the Company. 35

57 Corporate Structure The Executive Management Committee is comprised of the following: Exhibit 7 3: Executive Management Committee Role Chairman Co-Chairman Member Member Member Member Member Name Nasser Sultan Al-Subaie Mohammed Suliman Al-Saleem Khalid Suliman Al-Saleem Mahmoud Suliman Shurrab Amin Mahmoud Nimer Marwan Toufiq Khatib Mushairy Mohammed Al-Subaie Source: Mouwasat Resumes of Senior Management The resumes of the senior management team of the Company are as summarized below: Mr. Mohammed Suliman Al-Saleem: Summarized previously, see page 42. Mr. Khalid Suliman Al-Saleem: Summarized previously, see page 42. Mr. Mahmoud Suliman Shurrab: Age: 53; Nationality: Jordanian; Position: Chief Finance & Administration Officer; Education: He holds a Bachelor degree in Commerce from Cairo University (1978); Experience: He joined Mouwasat in 1980 where he was the chairman of the planning and budgeting committee and the chairman of the cost control committee for Dammam hospital. During his employment with Mouwasat, he attended more than 20 training courses covering various health related topics; such as health care management, financial management, health care cost control, bench marking analysis, and strategic planning. Currently, his responsibilities include the fiscal management and planning, development projects, and direction and evaluation of strategic planning of the Company. Additionally, Mr. Shurrab is tasked with reviewing and analyzing best means for cost allocation. He initiates specially tailored studies and advises on Company s expansion projects that require significant capital expenditures, key Company acquisitions, and any new service or training course to be introduced. Mr. Shurrab also develops and coordinates annual operating plans, manpower budget, and allocation and he directly reports to the Vice-Chairman of the Company. Mr. Saqr Mohammed Al-Araj: Age: 36; Nationality: Jordanian; Position: Chief Internal Audit Officer; Education: He holds a Bachelor degree in accounting from University of Jordan (1996); Experience: Prior to joining the Company, Mr. Saqr was the Chief Internal Auditor in Ghassan Al-Nemer Holding Group in Dammam for the period He also held the position of chief of internal audit for Al-Rashed Trading and Contracting Company in Riyadh for the period Mr. Marwan Toufiq Khatib: Age: 63; Nationality: British; Position: Chief Central Procurement Officer; Education: He holds a Bachelor of Science degree with Honors in Pharmacology from the University of Sunderland, UK (1974) and post graduate diploma in Purchase and Supply Management from St. Helens Management Center, UK (1977); Experience: Prior to joining Mouwasat hospital in Dammam in 1988, he worked as Business Manager and Hospital Planning/Commissioning Officer with the Ministry of Health, UK and Director of Material Management with Royal Commission of Jubail & Yanbu during the period

58 Corporate Structure Dr. Omar Fadlalla El-Sharif: Age: 52; Nationality: Sudanese; Position: Chief Medical Officer and Chief of Surgery Dammam; Education: He holds a Master of Medicine and Surgery (M.B.B.S) degree from Khartoum University (1980) and is a Fellow of the Royal College of Surgeons (1989); Experience: Prior to joining Mouwasat in Dammam in 1996, Dr. El-Sharif was a faculty member of Khartoum University during the period and was the Chief of Surgery at Royal Commission of Al-Jubail Industrial City Hospital during the period Ms. Eman Ahmed Darweesh: Age: 36; Nationality: Palestinian; Position: Performance Improvement Manager; Education: She holds a Bachelor degree in Medicine from King Saud University and a PHD in Medical Care from Washington University, USA (2009); Experience: Ms. Eman has been working for Mouwasat for 14 years, where she progressed to be Performance Improvement Manager. Ms. Therese Douchette Morien: Age: 67; Nationality: Canadian; Position: Chief Nursing Officer; Education: She holds a Bachelor degree in Nursing from the University of Quebec-Canada (1987); Experience: Prior to joining Mouwasat hospital in Dammam in 1988, she worked as Assistant Head Nurse in Quebec, Saint Sacrement Hospital for a period of ten years. Engr. Uday Chandran Nair: Age: 56; Nationality: Indian; Position: Chief Facility Engineer; Education: He holds a Bachelor of Science degree in Engineering from Calicut University, India (1976); Experience: Prior to joining Mouwasat hospital in Dammam in 1985, he worked with Vijaya Electrics as Project Engineer during the period Mr. Khalid Mohammed Al-Subaie: Summarized previously, see page 42. Mr. Isam Younis Assaf: Age: 50; Nationality: Jordanian; Position: Marketing Manager; Education: He holds a Bachelor degree in Psychology from the University of Jordan (1982); Experience: Prior to joining Mouwasat hospital in Dammam in 1989, he worked with Al-Hussan Group during the period Engr. Wael Hanna Haddad: Age: 38; Nationality: Jordanian; Position: IT Manager; Education: He holds a Bachelor of Science degree in Computer Science from Yarmouk University (1992) and a Master degree in Information Systems from the Arab Academy of Banking and Finance Services, Jordan (2001); Experience: Prior to joining the Company in 2004, he worked in various positions with the Ministry of Interior in Jordan and with Jordan Telecom Company as Programmer, Integrator Engineer, System Analyst, and Project Manager during the period Mr. Mushairy Mohammed Al-Subaie: Age: 23; Nationality: Saudi; Position: Administrative Manager; Education: He is pursuing a Business Administration degree from the University College of Bahrain; Experience: He joined the Company in 2006 as an Administrative Manager in Mouwasat Hospital in Dammam. 37

59 Corporate Structure Dr. Amin Mahmoud Nimer: Age: 52; Nationality: Jordanian; Position: Chief Executive Officer - Dammam Hospital; Education: Dr Nimer holds a Bachelor of Medicine and Surgery (M.B.B.Ch) from Tanta University in Egypt (1980); Experience: Prior to joining Mouwasat hospital in Dammam in 1985, he served as Senior Physician with Makased Hospital in Jerusalem, Palestine from and as Chief Physician for Palestine Friend Society, Ramallah during the period Dr. Osama Saber Mustafa: Age: 53; Nationality: Egyptian; Position: Chief Operating Officer - Dammam Dispensary; Education: He holds a Ph.D in Business Administration from the American University of London (2000), a M.B.B.Ch from Assist University, Egypt (1981) and a Master degree in Sociology in Social Science from the University of Birmingham, UK (1990); Experience: Prior to joining the Company in 1992, Dr. Mustafa worked with Asiut University Hospital, Cairo as Orthopedic Specialist from Dr. Hisham Abdul Hady Abdulfattah: Age: 49; Nationality: Egyptian; Position: Chief Operating Officer - Al-Qatif Hospital; Education: He holds a Bachelor of Medicine and Surgery (M.B.B.Ch) degree from Ein Shams University, Egypt (1983) and a Master Degree in Orthopedic Surgery from Ein Shams University, Egypt (1990); Experience: Prior to joining the Company in 1997, he worked at Al-Salaam Hospital, Cairo as Orthopedic Specialist from Dr. Adnan Soliman Khalil: Age: 46; Nationality: Syrian; Position: Chief Operating Officer - Jubail Hospital; Education: He holds a Bachelor of Medicine and Surgery (M.B.B.S.) degree (1986) and a post-graduate degree in Pediatrics (1990) from Damascus University; Experience: He joined Mouwasat dispensary in Jubail in 1993 as Medical Director. Dr. Mohammed Yosri Al-Farshooti: Age: 60; Nationality: Egyptian; Position: Chief Operating Officer - Madina Hospital; Education: He holds a Bachelor of Medicine and Surgery degree from Cairo University (1973); Experience: Prior to joining Mouwasat dispensary in 2007 Dr. Al-Farshooti held the position of Consultant and Chief of Gynecology in One-Day-Surgery Hospital in Cairo. Dr. Nasr Shafiq Boulos: Age: 61; Nationality: Sudanese; Position: Chief Operating Officer - Riyadh Hospital (Najd Consulting Hospital); Education: He holds a Bachelor of Medicine and Surgery (M.B.B.Ch) degree from Cairo University (1972) and is a Primary Fellow of the Royal College of Surgeons (F.R.C.S.) from Ireland (1987); Experience: Prior to joining Mouwasat dispensary in 1980 in Haii clinics in Jubail, he worked at various government hospitals in Sudan and Saudi Arabia. Dr. Nawwar Anwar Sa ad Aldein: Age: 39; Nationality: Syrian; Position: Chief Medical Officer - Al-Ahsa Dispensary; Education: He holds a Bachelor of Medicine and Surgery degree and a Master degree from Al-Asad University, Syria (1998, 2000 respectively); Experience: Prior to joining Mouwasat dispensary in 2001, Dr. Nawwar was a General Surgeon in Al-Qerdaha hospital and served as a General Surgeon Specialist in Mouwasat hospital in Madina and in Mouwasat s Al-Ahsa dispensary. 38

60 Corporate Structure Dr. Ahmed Abdulfattah Touman: Age: 55; Nationality: Jordanian; Position: Chief Pharmacist; Education: He holds a Bachelor of Science degree in Pharmacy from Cairo University (1977); Experience: Prior to joining the Company in 1997, he worked as Director of Pharmacy at King Abdulaziz University Hospital in Jeddah during the period Corporate Governance The Company s policy is to adopt high standards of corporate governance through implementing a clear description of the Board s and the executive management s responsibilities. Defining the Company s mission, goals, strategic objectives, and providing guidelines while assuring the efficiency and effectiveness of the overall planning system are the key roles of the Company s Board of Directors. The Company s internal control systems have been adopted in all its departments. Currently, Mouwasat has two corporate governance committees: Internal Audit Committee and Nomination and Remuneration Committee, which are in place to review the Company s operations within their particular areas of expertise and present their reports on their findings and suggestions to the Board Internal Audit Committee The Internal Audit Committee oversees financial, risk management, and internal controls aspects of the Company s operations. Its responsibilities include the review and discussion of the Company s interim and annual financial statements. The Internal Audit Committee oversees the Company s external auditors, reviews the effectiveness of external and internal audit, and has the authority to engage such external experts as it feels necessary in order to fulfill its obligations of stewardship on the financial affairs of the Company. The Audit Committee has the responsibility of reviewing the effectiveness of the Company s system of internal controls, accounting information systems, and finance department competencies and capabilities in light of compliance with generally accepted accounting standards. The duties and responsibilities of the Internal Audit Committee also include the following: Assign the external auditors and recommend their compensation to the Board; Review the comments of the external auditors on the annual financial statements and follow-up on the decisions have been taken relative to the comments; Review the financial statements prior to presenting them to the Board; Supervise the Company s internal auditing department to verify its efficacy in discharging the tasks and duties assigned to it by the Board of Directors; Review the internal auditing system and draft a written report and its recommendations thereon; Review and comment on the audit plan with the external auditor; and Review and comment on the applicable accounting policies and provide the Board with recommendations thereon. The existing Internal Audit Committee is comprised of the following directors: Exhibit 7 4: Internal Audit Committee Role Chairman Member Member Name Mr. Mohammad Sultan Al-Subaie Mr. David Anthony Price Mr. Ibrahim Hamad Al-Babtain Source: Mouwasat Nomination and Remuneration Committee The Board of Directors has formed from among its members a Nomination and Remuneration Committee, the duties of which include the following: Recommend nominations to the Board, taking care not to nominate any person who has been found guilty of a crime; Annually review the requirements of the appropriate skills needed for the Board membership and generate a description of the capabilities and qualifications required for the membership of the Board, including the time that a Director is required to dedicate to the Board s functions; 39

61 Corporate Structure Review the structure of the Board of Directors and submit recommendations on potential changes; Identify the vulnerabilities and strengths of the Board of Directors and propose remedies that are consistent with the Company s interests; Verify annually the independence of the independent Directors and the absence of any conflict of interests if the Director serves as an incumbent Director to the board of another Company; and Draw up clear policies for the remuneration of the board Directors and senior executives, using performance criteria in the determination of such remunerations. The existing Nomination and Remuneration Committee is comprised of the following Directors: Exhibit 7 5: Nomination and Remuneration Committee Role Chairman Member Member Source: Mouwasat Name Mr. Nasser Sultan Al-Subaie Mr. Mohammed Suliman Al-Saleem Mr. Ibrahim Hamad Al-Babtain 7.4 Services Contracts The members of the Mouwasat Board are appointed by the General Assembly. The Board member s responsibilities are governed by the Company s bylaws and the Board charter. The following is a summary of the service contracts, duties, and responsibilities of the Board members and the Managing Director/ Deputy Managing Director Chairman of the Board Duties and Responsibilities Ensure the clarity of the Board s functions, framework of duties, and the basis for the division of responsibilities; Ensure the clarity and precision of the Board s business plan and priority of topics brought before the Board; Ensure that the Board s responsibilities adhere to and fulfill the vision and strategy of the Company; Lead the Board in selecting Managing Director/Deputy Managing Director who will be responsible for the administration of the Company; Support the Committees through administrative guidance and performance evaluation; Vote over the appointment of senior management and executive officers; and Assess the performance of the Board members. Allowances The Chairman of the Board will be eligible for a meeting allowance of SAR 3,000 per Board meeting. Duration The Chairman s duration of service is determined in accordance with the Company s bylaws, which is 3 years. As an exception, the current Board has a duration of five years and will expire on 4 January Directors Duties and Responsibilities Approve the mission and vision statements; Participate in the overall direction and planning of the Company s future plans; Ensure effective implementation of policies and objectives of the Company; Participate in determining the Company s priorities and monitor the effective and efficient utilization of the Company s assets; Vote over the appointment of senior management and executive officers; Assist in evaluation and assessment of the executive officers and Board members; and Assess the Board s own performance. Allowances Non-Executive Directors will be eligible for a meeting allowance of SAR 3,000 per Board meeting whereas Executive Directors will be eligible for a meeting allowance of SAR 1,500 per Board meeting. 40

62 Corporate Structure Duration The Directors duration of service is determined in accordance with the Company s bylaws, which is 3 years. As an exception, the current Board has a duration of five years and will expire on 4 January Managing Director/ Deputy Managing Director Duties and Responsibilities Managing both the administrative and technical aspect of the Company; Optimizing resource utilization; Achieving objectives and meeting targets; Coordinating and planning with the different divisions to meet budget targets; Recommending and implementing policies and strategies to achieve the objectives of the Company; Monitoring on the Company s activities and providing administrative and technical support to the senior management; Communicating decisions of the senior management and the Board and monitoring their implementation; Supporting the strategic planning division; Supporting quality control activities and fostering a quality oriented culture; and Executing Board resolutions. Allowances The Managing Director and Deputy Managing Director will be eligible for a meeting allowance of SAR 1,500 each. Duration The Managing Director and Deputy Managing Director duration of service is determined by a renewable annual employment contract for one full Gregorian year (starting on January 1st and ending on December 31st), automatically renewable by the Board Declaration in Respect of Directors and Key Officers The Directors, Managing Director, Deputy Managing Director and the Chief Finance and Administrative Officer declare that they: Have not at any time been declared bankrupt or been subject to bankruptcy proceedings; and Do not themselves, nor do any relatives or affiliates, have any material interest in any written or verbal contract or arrangement in effect or contemplated at the time of the Prospectus, which is significant in relation to the business of the Company. The Management of Mouwasat confirms that Mouwasat is committed to apply articles 69 and 70 of the Companies Regulations issued by the ministry of commerce and industry which provide that: All related party contracts are to be voted for in the ordinary general assembly; and The Founding Shareholders and the Board of Directors declare not to participate in any competitive business with that of the company, or engage in any of the commercial activities carried on by the Company or deal with related parties on commercial basis Remuneration of Directors and Senior Management Total paid compensation to the Board of Directors for the years ended 31 December 2006, 2007 and 2008 amounted to SAR 2.3 million, SAR 2.3 million, and SAR 2.3 million, respectively. Total remuneration of the Company s executive management for the years ended 31 December 2006, 2007 and 2008 amounted to SAR 3.9 million, SAR 4.5 million, and SAR 5.7 million, respectively. Moreover, the Directors and the Managing Director do not have any powers enabling them to vote on remuneration to themselves. The Directors and senior management of the Company do not have any powers to borrow from the Company. 7.5 Employees The Company has documented and detailed recruitment policies to ensure the recruitment and retention of qualified personnel. These policies are consistent with the Company s goal of delivering the best quality services to its customers. Mouwasat employs a total of 2,389 staff as of 31 December 2008 at various facilities. Staff profile at Mouwasat units is as follows: 41

63 Corporate Structure Exhibit 7 6: Number of Employees Saudis Non-Saudis Total Senior Management Doctors Nurses & Technicians Administrative Senior Management Doctors Nurses & Technicians Administrative Senior Management Doctors Nurses & Technicians Administrative Total 31 Dec 2008 Dammam Hospital Madina Hospital Jubail Hospital Al-Qatif Hospital Dammam Dispensary Al-Ahsa Dispensary Total as of 31 Dec Dec 2007 Dammam Hospital Madina Hospital Jubail Hospital Al-Qatif Hospital Dammam Dispensary Al-Ahsa Dispensary Total as of 31 Dec Dec 2006 Dammam Hospital Madina Hospital Jubail Hospital Al-Qatif Hospital Dammam Dispensary Al-Ahsa Dispensary Total as of 31 Dec Dec 2005 Dammam Hospital Madina Hospital Jubail Hospital Al-Qatif Hospital Dammam Dispensary Al-Ahsa Dispensary Total as of 31 Dec , , , , , , , ,083 Source: Mouwasat Saudi Nationals represent around 18.4% of the staff of Mouwasat as of 31 December The Company actively pursues recruiting Saudi nationals under its Saudization policy and, to this effect, has established a Saudization managerial committee. This committee has initiated steps for the recruitment and training of a Saudi workforce that includes the establishment of a national training program whereby new recruits receive on-the-job training and occasional classroom instructions. 42

64 8 Dividend Record and Policy It is the intention of Mouwasat to make dividend payments with a view to maximize shareholders value in line with the Company s earnings, its financial condition, the condition of the markets, the general economic climate, and other factors, including analysis of investment opportunities and reinvestment needs, cash and capital requirements, business prospects, and the effect of such dividends on the Company s Zakat position, as well as other legal and regulatory considerations. Dividends will be distributed in Saudi Riyals. Although it is Mouwasat s intention to pay annual dividends to its shareholders, the Company does not make any assurance that any dividend will actually be paid, nor any assurance as to the amount which will be paid in any given year. The distribution of dividends is subject to certain limitations contained in the Company s bylaws. The Offer Shares will be entitled to receive dividends declared by the Company after the Offering Period and for subsequent fiscal years. The following is a summary of dividends paid to shareholders in recent years: Exhibit 8 1: Dividends Payment History (SAR 000) Year Declared dividends per year Actual paid dividends during the year ,000 15,000 for ,000 20,000 for 2006 and 12,500 for ,000 22,500 for 2007 and 20,000 for 2008* Source: Mouwasat * The Company paid 15,000,000, which is the remainder of the declared dividends of 2008 during

65 9 Capitalization The following table summarizes the Company s capitalization according to the Audited Financial Statements as of 31 December 2008, 2007, and The following table must be read in conjunction with the Audited Financial Statements as well as the accompanying notes (please see Accountant s Report ). Exhibit 9 1: Mouwasat Capitalization (SAR) Liabilities Current 96,214,174 89,047,047 92,329,791 Non-current 100,098, ,296,171 97,163,669 Total 196,312, ,343, ,493,460 Shareholders equity Capital 250,000, ,000, ,000,000 Statutory reserve 24,906,272 15,199,050 6,323,197 Retained earnings 134,160,804 89,295,810 41,913,127 Total shareholders equity 409,067, ,494, ,236,324 Total capitalization 605,379, ,838, ,729,784 Source: Audited Financial Statements The Directors confirm that neither the Company s capital nor the capital of any affiliates is under option. The Directors also confirm that the Company does not have any debt instruments as of the date of the Prospectus except as noted in the Borrowings section of the Management Discussion and Analysis. 44

66 10 Use of Proceeds The total proceeds from the Offering are SAR 330,000,000, of which SAR 10,800,000 will be applied towards issue expenses, which includes fees of each of the financial advisor, legal advisor to the Transaction, and reporting accountants, in addition to expenses of the underwriter, Lead Manager, selling agents, marketing, printing, distribution, and other related expenses. The net proceeds of SAR 319,200,000 will be distributed to the Selling Shareholders on a pro-rata basis based upon each Selling Shareholders percentage of ownership in the Shares being sold in the Offering. The Company will not receive any part of the proceeds from the Offering. No commissions, discounts, brokerages or other non-cash compensation were granted by the Company in the two years immediately preceding the date of this Prospectus. The Selling Shareholders will bear all Offering expenses. 45

67 11 Summary of Company s Bylaws Name of the Company: The name of the Company is Mouwasat Medical Services Company, a Saudi joint stock company. Objectives of the Company: The objectives of the Company include ownership, establishment, operation, and maintenance of hospitals, dispensaries, medical centers, clinics, medicine warehouses, pharmacies, and medical, residential, and commercial compounds; and wholesale and retail trading in medical and surgery appliances, machinery, equipment and medicines, including import and export of all of the above items; and sale, purchase and lease of land and real estate and the establishment of buildings on such land and real estate and the sale and lease of such buildings for the Company; in addition to commercial agencies and distributorship arrangements. The Company shall obtain the necessary licenses from the relevant authorities prior to performing any of the activities listed above which require a license. Participation in Other Companies: The Company may acquire an interest in, merge with, or participate in any manner with other corporations or companies engaged in a business which is similar to the business of the Company or that may assist the Company to achieve its objectives, and it may invest in any other companies and all types of investment funds provided that such interest does not exceed twenty percent (20%) of the Company s free reserves and ten percent (10%) of the capital of the participating company, the total participation does not exceed the value of these reserves, and the General Assembly is informed at their next meeting. Head Office of the Company: The Company s head office shall be in the city of Dammam, Saudi Arabia. The Board of Directors may transfer the head office to any other city in the Kingdom of Saudi Arabia and may establish branches, offices, or agencies for the Company within or outside the Kingdom of Saudi Arabia. Duration of the Company: The duration of the Company shall be ninety-nine (99) years commencing on the date of issuance of the Minister of Commerce and Industry s resolution announcing the conversion of the Company. The Company s period may always be extended by a resolution of the Extraordinary General Assembly taken at least one year prior to the expiration of the term of the Company. Capital of the Company: The share capital of the Company shall be two hundred and fifty million Saudi Riyals (SAR 250,000,000), divided into twenty five million (25,000,000) registered shares of equal value of ten Saudi Riyals (SAR 10) each. All shares of the Company shall be of nominal value and shall not be issued at less than the par value. Shares may be issued above par value, and the amount in excess of the par value shall be added to the statutory reserve even where the statutory reserve has reached its maximum limit. A share shall not be subject to partition against the Company. If a share is jointly owned by several persons, such persons must nominate one (1) of them to exercise the rights attached to such a share jointly on their behalf but they shall be jointly liable for the obligations arising from the ownership of such a jointly owned share. All shares shall be negotiable after issuance of its certificates and the approval of the Capital Market Authority, and these shares shall be marked as to their type and the conversion date of the Company. Shareholders of the Company: The owners of the Company s subscribed to all the shares of the Company amounting to twenty five million (25,000,000) shares with a fully paid value of two hundred and fifty million Saudi Riyals (SAR 250,000,000). Shares Register: The nominal shares shall be transferred by being recorded in the shareholders register which shall contain the names of the shareholders, their nationalities, their occupations, their domicile and address, the serial numbers of the shares, and the value paid-up on such shares. An annotation of such recordings shall be made on the share certificates. The transfer of title to a share shall not be effective vis-à-vis the Company or any third party except from the date of such recording in the said register or the completion of the transfer procedures through the shares Information computerized system. The subscription or ownership of the shares by a shareholder shall mean the acceptance by the shareholder of the Company s bylaws and his submission to the resolutions duly passed by the General Assembly of the shareholders in accordance with the Company s bylaws, whether the shareholder was present or absent, and whether the shareholder agreed to such resolutions or objected to them. Increase of Capital: Once it is ascertained to be economically feasible and after obtaining the approval of the competent authorities, the General Assembly may, in an Extraordinary Meeting, adopt a resolution to increase the Company s capital once or several times by issuing new shares having the same nominal value as the original shares, provided that the original capital shall have been paid in full, with due consideration to the requirements of the Companies Regulations. The said resolution shall specify the mode of increasing the capital, and the Shareholders shall have preemptive rights to subscribe for the new cash shares. The Shareholders shall be notified of the preemptive rights vested in them by notice to be published in a daily newspaper addressing the capital increase resolution and the conditions of subscription, or by written notice to the Shareholder by registered mail. Each Shareholder shall express the desire to exercise such preemptive 46

68 Summary of Company s Bylaws rights, if they so wish, within fifteen (15) days of the publication of such notice or receipt of such notice by registered mail. However, the preemptive rights of the Shareholders to subscribe for these new cash shares may be waived by resolution of the Ordinary General Assembly issued in accordance with Article (36) of these bylaws. The said shares shall be allotted to the original Shareholders who have expressed their desire to subscribe thereto, in proportion to the original shares owned by them, provided that the number of shares allotted to them shall not exceed the number of new shares they have applied for. The remaining new shares shall be allotted to the original Shareholders who have asked for more than their proportionate share, in proportion to the original shares they own, provided that their total allotment does not exceed the number of new shares they have asked for. Any remaining new shares shall be offered for public subscription. Article (10) of these byaws shall apply to payment of the value of shares issued pursuant to this Article. Decrease of Capital: The Company may, based on certain justifiable causes, reduce its capital if it proves to be in excess of the Company s needs or if the Company sustains losses. This decision must be made through a resolution adopted by the General Assembly in an Extraordinary Meeting and requires the approval of the Minister of Commerce and Industry. Such a resolution shall be issued only after reading the auditor s report on the reasons calling for such a reduction, the obligations to be fulfilled by the Company, and the effect of the reduction on such obligations, with due consideration to the provisions of the Companies Regulations. Article (10) of these By-Laws shall apply to payment of the value of shares issued pursuant to this Article. The resolution shall provide for the manner in which the reduction shall be made. If the reduction of the capital is due to its being in excess of the Company s needs, then the Company s creditors must be invited to express their objection thereto within sixty (60) days from the date of publication of the reduction resolution in a daily newspaper published in the city where the Company s head office is located. If any creditor objects to the reduction and submits to the Company, within the said period, the documents of his claim, the Company must pay off his debt if it is a due debt, or furnish adequate security for its payment if the debt is not due. Constitution of the Board of Directors: The Company shall be managed by a Board of Directors composed of eight (8) members appointed by the Ordinary General Assembly for a term not exceeding three years. As an exception to the foregoing, the Shareholders have appointed the Company s first Board of Directors for a term of five (5) years commencing as of the date of the Ministerial Resolution declaring the Company s conversion. Qualification Shares: Each member of the Board of Directors shall be a holder of a number of the Company s shares having a nominal value of no less than ten thousand Saudi Riyals (SAR 10,000). Such shares shall be deposited in a bank designated by the Minister of Commerce and Industry within thirty (30) days from the date of the appointment of the Director. Such shares shall be kept aside to guarantee the liability of the Board members and shall remain non-negotiable until the expiry of the period specified for hearing the liability action provided for under Article (76) of the Companies Regulations or until a judgment is passed on said action. Should a Director fail to submit such qualification shares within the period specified therefore, his membership in the Board shall be deemed null and void. Vacancies: Membership of the Board of Directors shall be terminated upon the expiration of the appointment period, or resignation or death of the Director, or if he is removed from his office by removal or disqualification of the member thereto in accordance with any applicable laws or regulations or as agreed by the Ordinary General Assembly. If the post of a Director becomes vacant, the Board may appoint a temporary member replacing him, provided that such appointment shall be laid before the first coming session of an Ordinary General Assembly. The new Director shall complete the rest of his predecessor s term. If the number of Directors falls below the required quorum for a Board meeting, an Ordinary General Assembly must be convened as soon as possible to appoint the required number of Directors. Powers of the Board of Directors: Without prejudice to the powers conferred on the General Assembly, the Board of Directors shall be vested with full powers to manage the business of the Company and supervise its affairs within and outside the Kingdom of Saudi Arabia. The Board of Directors is empowered, for example and without limitation, to represent the Company in its relationship with others and before all Government departments, the Shariah Courts, the Board of Grievances, Labor Offices, Primary and Supreme Committees of Settlement of Labor Disputes, the Committee for the Enforcement of Negotiable Instruments, all other courts of law or judicial bodies, Boards of Arbitration, Police Departments, the Directorate of Civil Rights, Chambers of Commerce and Industry, all companies and establishments, commercial banks, exchanges, financial institutions, Government funds, and other lenders; to plead, raise, defend, ask for, accept, and settle claims, enforce and defend against judgments, participate in tenders, to sign on behalf of the Company all documents including articles of association of companies in which the Company shall participate, and to amend the same, to sign winding-up resolutions, as well as any other contracts, deeds, and declarations before public notaries or other official bodies, to sign loan agreements, guarantees, mortgages, leases, and deeds for the sale and purchase of land, buildings, and all other contracts and agreements, close bank accounts, to receive and issue checks and to sign receipts, discharges, acknowledgments, bills of exchange, promissory notes, checks, and all negotiable instruments; to buy, sell, and mortgage real estate. 47

69 Summary of Company s Bylaws The Board of Directors is specifically empowered to contract loans with Government financial funds and institutions and commercial loans with commercial banks and financial institutions for any term including terms exceeding three (3) years. The Board of Directors may provide financial support to any of the companies in which the Company participates or any of the Company s affiliates or sister companies and may guarantee the credit facilities obtained by any of the companies in which the Company participates or any of the Company s affiliates or sister companies. The Board of Directors may release the Company s debtors from their obligations as it deems necessary. The Board of Directors may, within the limits of its jurisdiction, authorize and delegate one or more of its members or a third party to undertake a specific function or functions, and revoke such delegations in whole or in part. Remuneration of Board of Directors: Remuneration of the members of the Board of Directors (if any) shall be determined by the Ordinary General Meeting in accordance with the official decisions and instructions issued in this regard, within the limits of the provisions of the Companies Regulations and the laws or regulations complementary thereto. Directors may in addition be paid an attendance and transportation allowance as determined by the Board of Directors and the regulations and decisions issued in this respect. The report submitted by the Board of Directors to the Ordinary General Assembly shall contain a statement of all payments made to the members of the Board during the fiscal year; salaries, share in profits, attendance allowance, expenses, and other benefits. It shall as well contain a statement of payments made in consideration for technical, administrative or consultancy assignments carried out by the Board s members. Chairman, Managing Director and Secretary: The Board of Directors shall appoint a Chairman and Vice Chairman from among its members. The Board of Directors may also appoint a Managing Director from among its members. The Board may choose one person to be the Chairman and the Managing Director at the same time. The Chairman and Vice Chairman shall have the powers to convene the Board to meet and preside over its meetings. The Chairman, the Vice Chairman, and the Managing Director (in the event that one is appointed) shall be authorized to individually or jointly represent the Company in its relationship with others and before judicial bodies, Government departments, Notaries Public, courts of law, Commissions for settlements of disputes, Boards of Arbitration, Directorate of Civil Rights, Police Departments, Chambers of Commerce and Industry, and all companies and establishments; to issue powers of attorney and to appoint and remove agents and attorneys; to raise, defend, plead, settle, acknowledge and arbitrate; to accept and reject judgments on behalf of the Company; to sign and execute all agreements, certificates, and instruments including articles of association of companies in which the Company shall participate, and to amend the same, and to sign winding-up resolutions, as well as any other contracts, deeds, and declarations, before public notaries or other official bodies, loan agreements with Government financial funds and institutions and commercial banks and financial institutions, guarantees, mortgages, leases, and terminating them; to collect entitlements and settle obligations on behalf of the Company; to buy, sell, make, and accept transfers, receive, deliver, rent, lease, collect, and make payments, and to participate in tenders; to open bank and credit accounts and to withdraw and deposit from the same; to issue instruments, checks, and all negotiable instruments; to hire, contract with and appoint employees and workmen and to specify their salaries and remunerations and remove them, to request visas for employees and workmen from abroad, grant residency permits and work visas, and transfer and terminate their sponsorship; to authorize or delegate some or all of these powers to any other person or persons to do or cause to be done any act mentioned hereinabove, and to revoke such authorization or delegation in whole or in part. The Managing Director shall have such other powers as are specified by the Board of Directors and shall carry out such directives as are given to him by the Board of Directors. The Board of Directors shall, under a resolution to be adopted thereby, specify the compensation to be given to each of the Chairman, the Vice Chairman, and the Managing Director. The Board of Directors shall appoint a secretary from among its members or others and shall specify his duties, remuneration, and terms of service. The Secretary s duties shall include having the proceedings and resolutions of the Board of Directors written in minutes and recorded in a special register, intended for the said purpose, as well as maintaining and keeping such register. The term of the office of the Chairman, the Vice Chairman, the Managing Director, and the Secretary if the Secretary is a Board member shall not exceed their respective term of service as Directors. The term of the Chairman, the Managing Director, and the Secretary of the Board may be renewed. Board Meetings: The Board of Directors shall be convened upon a call by the Chairman or Vice Chairman. Such a call shall be made in writing and delivered by hand or fax or sent by registered letters not less than two weeks prior to the date set for the meeting, unless otherwise agreed by the Board members. The Chairman of the Board shall call for a meeting if so requested by any two Board members. 48

70 Summary of Company s Bylaws Quorum and Representation: A Board meeting shall be valid only if attended by at least five (5) members attending in person. In the event that a Director gives a proxy to another Board member to attend the Board meetings on his behalf, then such proxy shall be given accordance with the following: A member of the Board of Directors may not act on behalf of more than one Board member as to attending the same meeting; A proxy shall be made in writing; and A Board member acting by proxy may not vote on resolutions on which his principal is prohibited from voting. The Board resolutions shall be adopted with the approval of the majority vote of the members present in person or represented by proxy and otherwise eligible to vote on the matter in question. In case of a tie, the Chairman of the Board or the Director presiding over the Board in the absence of the Chairman shall have a casting vote. The Board may adopt its resolution by circulation unless one Board member requests a meeting for deliberations on such a resolution. Such Resolutions shall be adopted with the approval of the majority vote of the Board members and shall be laid before the Board in its first following meeting. Minutes of Meetings: Deliberations and resolutions of the Board shall be recorded in the form of minutes to be signed by the Chairman and the Secretary. The same minutes shall also be recorded in a register to be signed by the Chairman and the Secretary. Executive Committee: The Board of Directors may appoint from among its members an Executive Committee. The Board of Directors shall appoint a chairman from among the members of the Committee and shall specify the number of members of the Committee and the required quorum for its meetings. In accordance with the directions and guidelines prescribed by the Board from time to time, the Committee may exercise all of the powers authorized by the Board. The Executive Committee may not revoke or alter any of the resolutions adopted, or rules laid down, by the Board of Directors. General Assembly: A General Assembly duly convened shall be deemed representing all the Shareholders, and shall be held in the city where the Company s head office is located. Each Shareholder owning twenty (20) shares (or more) shall have the right to attend the General Assemblies, and each Shareholder may authorize another Shareholder, other than the members of the Board of Directors or employees of the Company, to attend the General Assembly on his/her behalf. Ordinary General Assembly: Except for matters reserved for the Extraordinary General Assembly, the Ordinary General Assembly shall be in charge of all matters concerning the Company. The Ordinary General Assembly shall convene at least once a year, within six (6) months following the end of the Company s fiscal year. Additional Ordinary General Assembly meetings may be convened whenever needed. Extraordinary General Assembly: The Extraordinary General Assembly shall have the power to amend the Company s bylaws, except for such provisions as may be impermissible to be amended under the law. Furthermore, the Extraordinary General Assembly may pass resolutions on matters falling within the competence of the Ordinary General Assembly under the same conditions applicable to the latter. Manner of Convening General Assemblies: The General Assembly shall be convened by the Board of Directors. The Board of Directors shall convene a meeting of the Ordinary General Assembly if requested to do so by the auditors or by a number of shareholders representing at least five percent (5%) of the Company s capital. The invitation for the assembly shall be published in the Official Gazette and in a daily newspaper circulated in the location of the head office of the Company, at least twenty-five (25) days prior to the date set for the assembly. The summons shall include the agenda of the meeting. However, so long as the Company s shares remain nominal, notice may be given at the time fixed above by registered letters. A Copy of the notice and the agenda shall be sent, within the period set for publication, to the Companies Department at the Ministry of Commerce and Industry. A list shall be prepared of shareholders attending on his/her behalf or by proxy. Quorum of Ordinary General Assembly: A meeting of the Ordinary General Assembly shall be valid only if attended by shareholders representing at least fifty percent (50%) of the Company s capital. If such quorum cannot be attained at the first meeting, a second meeting shall be held within thirty (30) days following the time set for the preceding meeting. Such notice shall be published in the manner prescribed in Article (31) of the Company s bylaws. The second meeting shall be deemed valid irrespective of the number of shares represented therein. Quorum of Extraordinary General Assembly: A meeting of the Extraordinary General Assembly shall be valid only if attended by Shareholders representing at least fifty percent (50%) of the Company s capital. If such quorum cannot be attained at the first meeting, a second meeting shall be convened in the same manner provided for in the preceding Article. The second meeting shall be valid only if attended by a number of Shareholders representing at least one-quarter (1/4) of the Company s capital. 49

71 Summary of Company s Bylaws Voting Rights: Each Shareholder shall have one vote for each share he/it represents at the Conversion General Assembly. Votes at the meetings of Ordinary and Extraordinary General Assemblies shall be computed on the basis of one vote for each share represented at the meeting. Voting Majorities: Resolutions of the Conversion General Assembly and Ordinary General Assembly shall be adopted by an absolute majority of the shares represented thereat. Resolutions of the Extraordinary General Assembly shall be adopted by a majority vote of two thirds of the shares represented at the meeting. However, if the resolution to be adopted is related to increasing or reducing the capital, extending the Company s period, dissolving the Company prior to the expiry of the period specified therefore under these By-Laws or merging the Company with another company or establishment, then such resolution shall be valid only if adopted by a majority of three-quarters (3/4) of the shares represented at the meeting. Rights of Shareholders at the Meetings of the General Assembly: Each shareholder shall have the right to discuss the items listed in the General Assembly s agenda and to direct questions in respect thereof to the members of the Board and the auditors in this respect. The members of the Board or the auditors shall answer the Shareholders questions to the extent that does not expose the Company s interest to any damage. If the shareholder deems the answer to the question unsatisfactory, then he/it may refer the issue to the General Assembly and its decision in this regard shall be conclusive and binding. Proceedings of the General Assembly: The General Assembly shall be presided over by the Chairman of the Board or, in his absence, the Director designated by him. The Chairman shall appoint a secretary for the meeting and a canvasser. Minutes shall be written for the meeting showing the names of the shareholders present in person or represented by proxy, the number of the shares held by each, the number of votes attached to such shares, the resolutions adopted at the meeting, the number of votes assenting or dissenting to such resolutions, and a comprehensive summary of the discussions that took place at the meeting. Such minutes shall be regularly recorded after each meeting in a special register to be signed by the Chairman of the assembly, the secretary, and the canvasser. Appointment of Auditor: The Company shall have one auditor or more to be selected from among the auditors licensed to work in the Kingdom of Saudi Arabia. The auditor shall be appointed annually and its compensation shall be fixed by the General Assembly. The General Assembly may further reappoint the same auditor. Access to Records: The auditor shall have access at all times to the Company s books, records, and any other documents, and may request information and clarification as it deems necessary. It may further check the Company s assets and liabilities. Auditor s Report: The auditor shall submit a report annually to the General Assembly showing how far the Company has enabled it to obtain the information and clarifications it has requested and what it has discovered of violations of the Companies Regulations and the Company s bylaws and its opinion as to whether the Company s accounts conform to the facts. Financial Year: The Company s fiscal year shall commence as on the 1st of January and expire on the 31st of December of each Gregorian year. Annual Accounts: The Board of Directors shall prepare at the end of each fiscal year an inventory of the Company s assets and liabilities on such date, the Company s balance sheet and profit and loss account, a report on the Company s activities and its financial position for the preceding year and its proposals as to the distribution of the net profits. The Board of Directors shall perform the foregoing at least sixty (60) days prior to the convening of the annual Ordinary General Assembly. The Board of Directors shall put such documents at the auditor s disposal at least fifty-five (55) days prior to the time set for convening the General Assembly. Such documents shall be signed by the Chairman of the Board of Directors and a set thereof shall be available at the Company s head office for the Shareholders review at least twenty-five (25) days prior to the time set for convening the General Assembly. The Chairman of the Board of Directors shall prompt the Company s balance sheet, profit and loss account, a comprehensive summary of the Board of Directors report, and the full text of the auditor s report to be published in a newspaper circulated in the city where the Company s head office is located, and shall send copies of such documents to the Companies Department at the Ministry of Commerce and Industry at least twenty-five (25) days prior to the date set for convening the General Assembly. Distribution of Annual Profits: After deducting all general expenses and other costs, the Company s annual net profits shall be allocated as follows: Ten percent (10%) of the annual net profits shall be set aside to form a statutory reserve. Such setting aside may be discontinued by the Ordinary General Assembly when said reserve totals one-half (1/2) of the Company s capital; It shall be paid to the holders of preferred shares the specified percentage pertaining to such shares; The Ordinary General Assembly may, upon request of the Board of Directors, set aside a percentage of the annual net profits to form an additional reserve to be allocated for the purpose or purposes decided by the Ordinary General Assembly; 50

72 Summary of Company s Bylaws Out of the balance of the profits, it shall be paid to the Shareholders an initial payment of not less than five percent (5%) percent of the paid-up capital; The balance shall be distributed among the Shareholders as an additional share of the profits or transferred to retained profits account; and The Company may distribute semi-annual and quarterly profits after it has completed the necessary procedures put in place by the competent authorities. Distribution of Dividends: The profits to be distributed among the shareholders shall be paid at such place and time as determined by the Board of Directors, in accordance with the instructions issued by the Ministry of Commerce and Industry. Company Losses: If the Company s losses total three-quarters (3/4) of its capital, then the members of the Board of Directors shall call the Extraordinary General Assembly for a meeting to consider whether the Company shall continue to exist or be dissolved prior to the expiry of the period specified therefore under Article (5) of the Company s bylaws. In all cases the Assembly s resolution shall be published in the Official Gazette. Disputes: Each shareholder shall have the right to file a liability action, vested in the Company, against the members of the Board of Directors if they have committed a fault which has caused some particular damage to such shareholder, provided that the Company s right to file such action shall still be valid. The shareholder shall notify the Company of his/ her intention to file such action. Dissolution and Winding up of the Company: Upon the expiry of the Company s period, or if it is dissolved prior to the time set for the expiry thereof, the Extraordinary General Assembly shall, based on a proposal by the Board of Directors, decide the method of liquidation, appoint one or more liquidators and specify their powers and fees. The powers of the Board of Directors shall cease upon the Company s expiry. However, the Board of Directors shall remain responsible for the management of the Company until the liquidators are specified. The Company s administrative departments shall maintain their powers to the extent that they do not interfere with the powers of the liquidators. The Companies Regulations: The Companies Regulations shall apply to all other matters not specifically provided for in the bylaws of the Company. 51

73 Legal Information Branch Certificates and Licensing The following exhibit illustrates the Company s Commercial Registration and Medical Licenses: Exhibit 12 1: Branches and Licenses Registered to Mouwasat Name CR / Licenses Number Date of Issue Date of Expiry Mouwasat Hospital Jubail /3/1421H 13/01/1432H Mouwasat Hospital Al-Qatif /12/1427H 19/12/1432H Mouwasat Dispensary - Al-Ahsa /10/1424H 13/1/1432H Mouwasat Pharmacy (7) Khobar /3/1427H 26/3/1432H Mouwasat Pharmacy (1) Dammam /9/1425H 13/1/1432H Mouwasat Pharmacy (2) Dammam /9/1425H 13/1/1432H Mouwasat Pharmacy(3) Dammam /9/1425H 13/1/1432H Mouwasat Pharmacy (4) Jubail /9/1425H 13/1/1432H Mouwasat Hospital Madina /5/1421H 13/1/1432H Mouwasat Hospital Pharmacy Madina /11/1421H 13/1/1432H Mouwasat Hospital Riyadh /11/1424H 13/1/1432H Mouwasat Hospital Dammam /8/1408H 12/8/1433H Mouwasat Hospital Al-Qatif /7/1427H 27/10/1433H Mouwasat Hospital Jubail /5/1424H 3/7/1434H Mouwasat Dispensary Al-Ahsa /5/1409H 22/12/1432H Mouwasat Dispensary Dammam /2/1407H 10/6/1433H Mouwasat Pharmacy no. (1) Dammam /5/1407H 11/12/1430H Mouwasat Pharmacy no.(2) Dammam /9/1408H 3/12/1429H Mouwasat Pharmacy no.(3) Dammam /9/1425H 8/8/1431H Mouwasat Pharmacy no. (4) Jubail /6/1412H 3/6/1432H Mouwasat Pharmacy no.(5) Al-Ahsa /3/1422H 25/6/1434H Mouwasat Pharmacy no.(7) Khobar /1/1427H 23/4/1432H SMCC Khobar /10/1426H 15/11/1432H Mouwasat Hospital Madina /2/1404H 12/5/1432H Mouwasat Pharmacy Madina /6/1421H 26/11/1434H Mouwasat Hospital Riyadh /2/1426H 25/2/1431H Source: Mouwasat Summary of Material Agreements Agreement with Eastern Medical Services Company On 28 Jumada Athani 1427H (corresponding to 24 July 2006G), the Company acquired 51% of the shares of Eastern Medical for the amount of SAR 28,560,000. The shareholders of Eastern Medical entered into a management agreement with Mouwasat pursuant to which (i) Mouwasat would operate the hospital and manage its resources, procurements, and operational functions; and (ii) Eastern Medical would pay Mouwasat a fixed percentage of the annual net operational revenues of the hospital whose name has been changed from Gulf Specialist Hospital to Al-Mouwasat Hospital Al-Qatif Agreement with Saudi United Development Company (SUDC) On 2 Jamada Athani 1423H (corresponding to 11 August 2002G), the Company entered into an agreement with the Saudi United Development Company for the management and operation of the Riyadh hospital located on Exit 14, which now operates under the name of Najd Consulting Hospital managed and operated by Mouwasat. This agreement was amended on 19 Jumada Athani 1428H (corresponding to 1 July 2007G). Pursuant to this agreement, SUDC would pay Mouwasat a fixed percentage of the monthly revenues and of the hospital annual net profits until the end of the agreement which lasts for 10 years. The parties agreed to subcontract the management and operation of the eye, ear, nose, and throat sections within the hospital to Maghrabi Hospitals and Centers under a separate agreement. 52

74 Legal Information Agreement with Maghrabi Hospitals and Centers Company The Company and Maghrabi Hospitals and Centers Company entered into an agreement dated 4 Jumada Alawal 1423H (corresponding to 15 July 2002G) for the management and operation of Riyadh Hospital ENT department by Maghrabi Hospitals and Centers Company, which in return would receive a fixed percentage of the annual net profits of the ENT center. The contract s duration is for five years automatically renewable for similar period(s), unless one of the parties notifies the other party in writing of its intention not to renew the contract six (6) months prior to its original or renewed date of expiration. It should be noted that the Company did not renew the abovementioned Agreement, due to its commitments under an Agreement with the Saudi United Development Company (SUDC) for the management and operation of the Najd Consulting hospital (kindly refer to the summary of this agreement under above). The Center services are still being delivered to the hospital s customers and are expected to continue, since the Company is currently negotiating with Al- Maghrabi Hospitals and Centers certain provisions of the contract which is expected to be renewed shortly Al-Ahsa Dispensary Agreements On 25 Shawal 1420H (corresponding to 1 February 2000G), the Company entered into an agreement with Eng. Hamad Al-Hlaibi, the owner of a dispensary located in the district of Mubarraz in the city of Al-Ahsa, for the mutual funding, development, and maintenance of the dispensary for a period of 15 years. Mouwasat also entered into a Management and Operation Agreement with the same owner on 7 Thul Qa dah 1421H (corresponding to 1 February 2001G) for the management and operation of the dispensary for a similar duration. Under the terms of the agreement, the Company will lease a pharmacy belonging to the owner of the dispensary during the contract duration. At the beginning of 2007G, the Company entered into a lease contract with the owner of the dispensary for an annual amount of SAR 500,000 for 20 years Agreement between Advanced Medical Projects Company and Maghrabi Hospitals Company for Eye and Ear On 1 Jumada Athani 1418H (corresponding to 1 November 1997G), AMPC entered into an agreement with Maghrabi Hospitals Company for Eye and Ear for the management and operation of an ENT Center by Maghrabi Hospitals Company for Eye and Ear. The ENT Center is owned by AMPC and located in close proximity from Al-Mouwasat Hospital Dammam. The center is called Maghrabi Center for Eye & Ear. AMPC is equally owned by Mouwasat and Maghrabi Hospitals and Centers Company. The contract is for 25 years and renews automatically for similar term(s) unless either party informs the other in writing of its intention not to renew at least six (6) months in advance. Maghrabi Hospitals Company for Eye and Ear would receive a fixed percentage of the annual net profits of the center Medical Services Agreements Mouwasat entered into several medical services agreements with a number of organizations to accept to receive and treat beneficiaries and/or persons insured by these organizations, including the following: Exhibit 12 2: Parties to Medical Services Agreements with Mouwasat Insurance Companies Al-Alamiya Insurance Company (Royal & Sun Alliance Insurance) Alico Arab Commercial Enterprises Arabian Malaysian Company ASAS Health Care Company AXA Insurance E.C. Cumberland Insurance and Reinsurance Company Ltd Gulf Union Insurance and Risk Management Company International Insurance Company Limited E.C. Mediterranean and Gulf Insurance and Reinsurance (Medgulf) National Company for Cooperative Insurance (Tawuniya) Source: Mouwasat Other Companies Arabian Oil Company Al-Khafaji Aramco Gulf Operations Company Limited (AGOC) BHP International Metal Coating Company Brown & Root Saudi Limited Company General Organization for Social Insurance (GOSI) Gulf Stabilizers Industries (GSI) Saudi Arabian Airlines Saudi Arabian Mining Company (Maaden) Saudi Arabian Oil Company (Saudi Aramco) Saudi Cement Company Saudi Chevron Philips (SCP) Saudi Electricity Company United Aircraft Services Company Ltd (UNASCO) SABIC through Tawuniya 53

75 Legal Information Cooperation Agreements The Company entered into cooperation agreements for the formation of international links between Mouwasat and each of international parties for the provision of medical services, rendering of medical experience, technology, and know-how covering patient referral programs, physician exchange programs, management and operation consulting, and continuing medical education and training programs. Following are details of such agreements: On 20 Jumada Alawal 1420H (corresponding to 1 September 1999G), Mouwasat entered into a cooperation agreement with Washington University School of Medicine and BJC Health System (WUSM) for a period of 3 years automatically renewable; On 9 Rabi Alawal 1422H (corresponding to 1 June 2001G), Mouwasat entered into a cooperation agreement with Parkway Group Healthcare PTE Ltd, Singapore (PGH) for a period of 1 year automatically renewable; and On 10 Sha aban 1426H (corresponding to 14 September 2005G), Mouwasat entered into a cooperation agreement with King Hussein Medical City, Jordan for a period of 2 years automatically renewable Lease Agreements Mouwasat entered into the following lease agreements: The Company and Maghrabi Hospitals and Centers Company entered into a lease agreement for the Teeba Private Hospital (now named Al-Mouwasat Hospital in Madina) on 25 Thul Hijjah 1420H (corresponding to 1 April 2000G). Maghrabi Hospitals and Centers Company is the owner of the hospital assets and buildings. Pursuant to this agreement, Maghrabi Hospitals and Centers Company would operate the ENT clinic in the hospital, including one laser and operation room and an eyeglasses shop. In turn, Mouwasat would operate the entire hospital except those parts reserved for Maghrabi Hospitals and Centers Company. Under the terms of the agreement, Maghrabi Hospitals and Centers Company would receive rental payments plus a percentage of the net revenues of the hospital and Mouwasat would not contract any medical activity in relation to ophthalmology in Madina during the term of this agreement, which is a 20 year agreement starting on 1 April 2000; Land lease agreement with the Royal Commission of Yanbu and Jubail for land lots number 60 (2,250m2) and number 61 (1,836m2) of quarter 10 located in Jubail industrial city. The term of the leases are 30 and 33 Hijri years respectively and Mouwasat would have the right to purchase the land upon the termination of the lease agreement; The Company entered into a lease agreement with Advanced Medical Projects Company on 30 Jumada Athani 1418H (corresponding to 1 November 1997G) pursuant to which AMPC has leased a land for the purpose of building a medical center specialized in eye, nose, ear, and throat medicine and surgery. The annual rental is SAR 50,000 payable in advance. The lease term is 27 years from the date of execution renewable at the option of the landlord. AMPC does not have the right to sub-lease the land in whole or in part to third parties; and The Company entered into a lease agreement to rent the building in which the Dammam dispensary is located. According to the contract, the annual lease is SAR 80,000. The contract duration is 10 years starting on 1 September 1989 and was renewed; the current agreement will expire on 1 September Agreement with the Project Build Company The Company entered into a contract with the Project Build Company on 7 Rajab 1430H (corresponding to 20 June 2009G) for the construction of the Mouwasat Hospital in Riyadh, with a capacity of 200 beds and for a contract value equivalent to SAR 159,000,000. Pursuant to the contract, Project Build Company will supply and provide equipment, materials, labor, and all necessary services to complete the construction. Under the contract, Project Build Company should implement the project within 26 months, starting from 20 Rajab 1430H (corresponding to 15 July 2009G) Maintenance Agreements The Company has a number of agreements with equipment providers to provide maintenance and technical support to medical and other equipment and instruments including: GE El Seif Medical Services Company; Philips Medical Systems Saudi Arabia (Philips); Samir Photographic Supplies; Siemens Limited; Metito; Fakhry Communication Company; Mohammad Mansour Al-Romaih Establishment for Trading; and Mitsubishi Electric Saudi Ltd. (Mitsubishi). 54

76 Legal Information 12.3 Insurance Policies Mouwasat has several insurance policies covering its medical operations in Saudi Arabia that mainly include medical malpractice insurance covers for the benefit of the Company s physicians, fire loss, all property risks, motor, public, and product liability insurance Financing Facilities The Company is a party to several financing agreements with various institutions including the Saudi British Bank, Arab National Bank, Saudi Hollandi Bank, the National Commercial Bank, and Banque Saudi Fransi. The banking documents evidence various Murabaha and Tawaruq facilities and advances in the current account for working capital needs. These facilities are generally secured by corporate guarantees and the assignment of certain contract proceeds. In addition, the Company has term loan agreements with the Ministry of Finance, which are interest free and includes two separate loans obtained by Mouwasat and its subsidiary Eastern Medical. Those loans are secured by a mortgage over the land, equipment, and furniture of Mouwasat Hospitals in Dammam and Al-Qatif. The following is a description of the financing facilities obtained by the Company as of 31 December 2008G: Exhibit 12 3: Mouwasat Financing Facilities as of 31 December 2008G Bank name Amount SAR Balance as of 31 December 2008G Method of Repayment Loan Period Ministry of Finance Dammam 39,707,359 - Annually N/A Ministry of Finance Al-Qatif 30,878,922 25,089,124 Annually N/A Ministry of Finance Dammam 10,292,641 9,454,848 Annually N/A Arab National Bank 54,645,873 47,380,655 Monthly % Saudi British Bank 26,200,000 16,098,322 Monthly % Saudi Hollandi Bank 25,000,000 9,722,222 Monthly % National Commercial Bank 20,000,000 - Monthly % Banque Saudi Fransi 27,000,000 5,603,240 Monthly % Total 233,724, ,348,411 Source: Mouwasat Interest Rate 12.5 Trademarks Mouwasat logo and commercial name are exclusive trademarks registered in Saudi Arabia as per the following details: Exhibit 12 4: Trademarks Owned by Mouwasat Country Owner Trademark Reg. No. Dated Expiry Class Saudi Arabia Mouwasat Mouwasat Hospital in Arabic and Latin (pink color) Saudi Arabia Mouwasat Mouwasat Hospital in Arabic and Latin (blue color) Saudi Arabia Mouwasat Mouwasat Clinic in Arabic and Latin (pink color) Saudi Arabia Mouwasat Mouwasat Clinic in Arabic and Latin (blue color) Saudi Arabia Mouwasat Mouwasat - Hospitals and Centers in Arabic and Latin (pink color) Saudi Arabia Mouwasat Mouwasat - Hospitals and Centers in Arabic and Latin (blue color) Saudi Arabia Mouwasat Mouwasat - pharmacy in Arabic and Latin (dark blue and light brown color) Saudi Arabia Mouwasat Mouwasat - pharmacy in Arabic and Latin (light brown color) Source: Mouwasat 897/85 6/2/1428H 28/5/1437H /84 6/2/1428H 28/5/1437H /81 6/2/1428H 28/5/1437H /83 6/2/1428H 28/5/1437H /82 6/2/1428H 28/5/1437H /86 6/2/1428H 28/5/1437H /87 3/11/1428H 20/3/1438H 5 955/85 3/11/1428H 20/3/1438H 5 55

77 Legal Information 12.6 Litigation The Directors and Senior Management confirm that the Company is not involved, as of the date of this Prospectus, in any litigation, arbitration, or administrative proceedings that would, individually or in aggregate, have a material adverse effect on its financial condition and results of operations. 56

78 Underwriting Underwriter The Company and the Underwriter HSBC Saudi Arabia Limited have entered into an underwriting agreement for 7,500,000 shares representing the whole number of shares being offered prior to the commencement of the Subscription Period. The agreed principal terms of the underwriting agreement are set out below Sale and Underwriting of the Offer Shares Under the terms of the underwriting agreement: a) The Company undertakes to the underwriter that, on the first business day after the CMA approves the allocation of the Offer Shares following the end of the Subscription Period, it will: sell and allocate the Offer Shares to any applicant or institutional investor whose application for Offer Shares has been accepted by a Receiving Bank; and/or sell and allocate to the underwriter any Offer Shares that are not purchased by successful applicants or institutional investors pursuant to the Offering; and b) The underwriter undertakes to the Company that, on the allocation date, it will purchase the Offer Shares that are not subscribed for by successful applicants. The Company has committed to satisfy all terms of the underwriting agreement Commission and Expenses The Company will pay to the underwriter an underwriting fee based on the total value of the Offering. 57

79 14 subscription terms and conditions All Subscribers must carefully read the subscription terms and conditions prior to completing the subscription application form, since signing the subscription application form constitutes acceptance and agreement to the subscription terms and conditions subscription to offer shares The Offering will consist of 7,500,000 ordinary shares with a nominal value of SAR 10 per share representing 30% of the share capital of the Company at an offer price of SAR 44 per share. The Offering is restricted to: Tranche (A): Institutional Investors This tranche includes a number of institutions that were approached by the Lead Manager after consulting the Company and the Selling Shareholders and based on certain criteria set forth by the Capital Market Authority ( CMA ). Institutional investors are initially allocated 7,500,000 shares representing 100% of the Offer Shares for the public. The Lead Manager has the right to reduce the allocated shares to 3,750,000 shares representing 50% of the Offer Shares for the public in the event there is sufficient demand by Individuals (as defined in Tranche (B) and upon the CMA s consent. Tranche (B): Individual Investors This tranche includes Saudi nationals. A Saudi woman who is divorced or widowed and has children from a non-saudi husband may subscribe for Offer Shares in the name(s) of her minor children. Should an individual subscribe on behalf of his divorcee, his application shall be void. Individuals are allocated a maximum of 3,750,000 shares representing 50% of the Offer Shares for the public. In the case where the subscription by individuals does not amount to the maximum allocated shares, the Lead Manager has the right to reduce the number of Offer Shares allocated to individuals to the subscribed amount upon CMA s consent. A signed subscription application form submitted to any of the Selling Agents represents a legally binding agreement between the Selling Shareholders and the Subscriber. The Selling Shareholders own 100% of the issued share capital of the Company. Potential Saudi investors may obtain both the main and mini prospectuses in addition to the subscription application form from the following banks: the saudi British Bank (P.O. Box 9084, Riyadh 11413) national commercial Bank (P.O. Box 3555, Jeddah 21481) Bank albilad (P.O. Box 140, Riyadh 11411) Bank aljazira (P.O. Box 6277, Jeddah 21442) riyad Bank (P.O. Box 22622, Riyadh 11614) Banque saudi Fransi (P.O. Box 56006, Riyadh 11554) saudi Hollandi Bank (P.O. Box 1467, Riyadh 11431) The Saudi Investment Bank (P.O. Box 3533, Riyadh 11431) arab national Bank (P.O. Box 9802, Riyadh 11423) samba Financial group (P.O. Box 833, Riyadh 11421) al rajhi Bank (P.O. Box 28, Riyadh 11411) 58

80 Subscription Terms and Conditions The Selling Agents will commence receiving subscription application forms at their branches throughout Saudi Arabia from 24 Sha ban 1430H (corresponding to 15 August 2009G) to 30 Sha ban 1430H (corresponding to 21 August 2009G). Once the subscription application form is signed and submitted, the Selling Agents will stamp it and provide the Subscriber a copy of the completed subscription application form. In the event the information provided in the subscription application form is incomplete or inaccurate, or not stamped by the Selling Agents, the subscription application form will be considered void. Each Subscriber is required to specify the number of Offer Shares applied for in the subscription application form at the Offer Price of SAR 44 per Share. Subscriptions for less than 10 Offer Shares or fractional numbers will not be accepted. Increments are to be made in multiples of 10. Each Subscriber may not apply for more than 100,000 Offer Shares. Each Subscriber is required to submit the subscription application form during the Offering Period accompanied by the original and a copy of the national identification card, family identification card in addition to sufficient funds for the purchase of the requested shares. In the event an application is made on behalf of a Subscriber (parents and children only), the name of the person signing on behalf of the Subscriber should be stated in the subscription application form accompanied by the original and a copy of the power of attorney supporting such person s authority to act on the behalf of the Subscriber. The power of attorney must be issued before a notary public for those who are in Saudi Arabia and must be legalized through a Saudi embassy or consulate in the relevant country for those residing outside Saudi Arabia. The Selling Agents will verify all copies against the originals and will return the originals to the Subscriber. One subscription application form should be completed for each head of family applying for himself and members appearing on his family identification card if dependent Subscribers apply for the same number of Offer Shares as the prime Subscriber. In this case: (i) all Offer Shares allocated to the prime Subscriber and dependent Subscribers will be registered in the prime Subscriber s name; (ii) the prime Subscriber will receive any refund in respect of amounts not allocated and paid for by himself and dependent Subscribers, and (iii) the prime Subscriber will receive all dividends distributed in respect of the Offer Shares allocated to himself and dependent Subscribers (in the event the Shares are not sold or transferred). If a wife wants to subscribe for the shares in her name/account, she must complete a separate subscription application form as a prime subscriber. In such case, applications made by the husbands on behalf of their spouses will be cancelled and the independent application of the wives will be processed by the Selling Agent. Separate subscription application forms must be used if: (i) the Shares that will be allocated are to be registered in a name other than the name of the prime Subscriber/head of family; or (ii) dependent Subscribers apply for a different quantity of Offer Shares than the prime Subscriber. (iii) the wife subscribes in her name adding allocated shares to her account (she must complete a separate subscription application form as a prime subscriber). In the latter case, applications made by the husbands on behalf of their spouses will be cancelled and the independent application of the wives will be processed by the Selling Agent. Each Subscriber agrees to subscribe for and purchase the number of Offer Shares specified in the subscription application form submitted by the Subscriber for an amount equal to the number of Shares applied for multiplied by the Offer Price of SAR 44 per Share. Each Subscriber shall have purchased the number of Offer Shares allotted to him/her upon: (a) delivery by the Subscriber of the subscription application form to the Selling Agents; (b) payment in full by the Subscriber to the Selling Agents of the total value of Offer Shares subscribed for; and (c) delivery to the Subscriber by the Selling Agents the allotment letter specifying the number of Offer Shares allotted to him/her. The total value of the Offer Shares subscribed for must be paid in full to a branch of the Selling Agents by authorizing a debit of the Subscriber s account held with the Selling Agent where the subscription application form is being submitted. If a submitted subscription application form is not in compliance with the terms and conditions of the Offering, Mouwasat shall have the right to reject, in full or in part, such an application. The Subscriber shall accept any number of Shares allocated to him or her, as long as the number does not exceed the number of shares he has subscribed to Allocation and Refunds The Selling Agents shall open and operate escrow accounts named Mouwasat IPO. Each of the Selling Agents shall deposit all amounts received by the Subscribers into the escrow accounts mentioned above. Notification of the final allotment and refund of subscription monies, if any, will be made by 5 Ramadan 1430H (corresponding to 26 August 2009G). If the Offering is oversubscribed investors will be allocated a minimum of 10 Offer Shares with the remaining Offer Shares being allocated on a pro-rata basis. In the event that the number of Subscribers exceeds 375,000, the Company will not guarantee the minimum allocation of 10 Offer Shares per Subscriber, and the Offer Shares will be allocated equally between all Subscribers. If the number of Subscribers exceeds 3,750,000, the allocation will be determined at the discretion of the CMA. The final number of Offer Shares allocated to each Subscriber, together with any refunds due to the Subscribers in full without any charge or withholding by the Selling Agents, is expected no later than 5 Ramadan 1430H (corresponding to 26 August 2009G). 59

81 Subscription Terms and Conditions The Selling Agents will send confirmation/notification letters, to their Subscribers informing them of the final number of Offer Shares allocated together with the amounts, if any, to be refunded. The Selling Agents will also refund to the Subscribers any monies in respect of which no Offer Shares have been allocated to the relevant Subscribers, as provided in the confirmation/notification letters. Subscribers should communicate with the branch of the Selling Agents where they submitted their subscription application form for any further information Acknowledgements By completing and delivering the subscription application form, the Subscriber: accepts subscribing for the Company s Shares with the number of shares specified in the subscription application form; warrants that he/she had read the Prospectus and understood all its contents; accepts the bylaws of the Company and all subscription instructions and terms mentioned in the Prospectus; keeps his/her right to sue the Company for damages caused by incorrect or incomplete information contained in the Prospectus, or by ignoring major information that should have been part of the Prospectus and could effect his/her decision to purchase the Shares; declares that neither himself nor any of his family members included in the subscription application form has previously subscribed to Mouwasat s Shares and the Company has the right to reject all duplicate applications; accepts the number of shares allocated to him (to a maximum of the amount he has subscribed for) and all other subscription instructions and terms mentioned in the Prospectus and the subscription application form; and warrants not canceling or amending the subscription application form after submitting it to the Selling Agents Miscellaneous The subscription application form and all related terms, conditions and covenants hereof shall be binding upon and inure to the benefit of the parties to the subscription and their respective successors, permitted assigns, executors, administrators, and heirs; provided that, except as specifically contemplated herein, neither the subscription application form nor any of the rights, interests, or obligations arising pursuant thereto shall be assigned or delegated by any of the parties to the subscription without the prior written consent of the other party. The Prospectus has been released in both Arabic and English languages. In the event of a discrepancy between the English and Arabic text, the Arabic text of the Prospectus will prevail The Saudi Arabian Stock Exchange (Tadawul) In 1990, full electronic trading in Saudi Arabia equities was introduced. Tadawul was founded in 2001 as the successor to the Electronic Securities Information System. The market capitalisation as at 26/7/1430H (corresponding to 19/7/2009G was SAR 1,093 billion with 130 listed companies. Trading on Tadawul occurs through a fully integrated trading system covering the entire process from trade order through settlement. Trading occurs each business day between 11:00 am to 3:30 pm. After close of exchange trading, orders can be entered, amended or deleted from 10:00 am to 11:00 am. From 10:00 am new entries and inquiries can be made. The trading hours change during the holy month of Ramadan. Transactions take place through the automatic matching of orders. Each valid order is accepted and generated according to the price level. Market orders (orders placed at best price) are executed first, followed by limit orders (orders place at a price limit), provided that if several orders are generated at the same price, they are executed according to the time of entry. Tadawul distributes a comprehensive range of information through various channels, including in particular the Tadawul website and Tadawul Information Link. The Tadawul Information Link supplies trading data in real time to information providers such as Reuters. Exchange transactions are settled on a T+0 basis, meaning that ownership transfer takes place immediately after the trade is executed. Issuers are required to report all material announcements via Tadawul for onward dissemination to the public. Surveillance and monitoring is the responsibility of Tadawul as the operator of the market. The aim of supervision is to ensure fair trading and an orderly market. 60

82 Subscription Terms and Conditions 14.6 Trading on Tadawul It is expected that dealing in the Shares will commence on Tadawul after finalizing the Share allocation process. Tadawul will announce the start date of trading once determined. Dates and times included in this Prospectus are indicative and may be changed or extended subject to the approval of the CMA. The Shares can only be traded after allocated Shares have been credited to Subscribers accounts at Tadawul, the Company has been registered in the Official List, and its Shares listed on the Saudi Stock Exchange. Pre-trading is strictly prohibited and Subscribers entering into any pre-trading activities will be acting at their own risk. The Company shall have no legal responsibility in such an event. 61

83 15 Documents Available for Inspection The following documents will be available for inspection at Mouwasat head office in Dammam, between the hours of 9:00 am to 5:00 pm Saturday to Wednesday one week prior to and during the Offering Period: Company s bylaws together with amendments; Written consent from Legal Advisors, Torki A. Al Shubaiki in association with Baker & McKenzie Limited, to the reference in the Prospectus as the legal advisors to the Transaction; Audited Financial Statements for the years 2008, 2007, 2006 and 2005; E&Y written consent to the publication in the Prospectus of their Accountant s Report; Valuation report prepared by the Financial Advisor (translated into Arabic language); The market study conducted by Gulf Consulting House ; CMA approval to the Offering; The agreement between Mouwasat and SUDC and as amended on 16 Jumada Athani 1428H (corresponding to 1 July 2007G) and the Company s letter to SUDC dated 30 December 2007; and Major contracts and agreements. 62

84 16 Management s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of Mouwasat s financial condition and results of operations are based on and should be read in conjunction with the audited financial statements of Mouwasat Medical Services Company as at and for the years ended 31 December 2007, 2006 and 2005 (the Audited Financial Statements ), which have been audited by Ernst & Young ( E&Y ). E&Y do not themselves, nor do any of their relatives or affiliates have any shareholding or interest of any kind in the Company. They have furnished and not withdrawn their written consent to the reference in the Prospectus to their role as auditors of the Company for the fiscal years ended 31 December 2007, 2006, and The Management s Discussion and Analysis of Financial Condition and Results of Operations section contains forwardlooking statements that involve risks and uncertainties. Actual results for the Company could differ materially from those contemplated by these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Prospectus, particularly under the Risk Factors section Director s Declaration for Financial Information The Directors declare that the financial information presented in the Prospectus are extracted without material change from the Audited Financial Statements and that such statements have been prepared in accordance with SOCPA accounting standards. The Directors further declare that there has been no material adverse change in the financial or trading position of the Company from 31 December 2006 up to and including the date of the Prospectus Results of Operations The following tables summarize the audited income statements for the periods ended 31 December 2007, 2006 and Exhibit 16 1: Income Statement (SAR 000) Year ended 31 December Operating revenues 309, , ,418 Trading sales 88,917 76,568 57,250 Management fee 2,318 1,423 1,717 Total Revenues 400, , ,385 Cost of operations (158,023) (148,850) (114,015) Cost of sales (69,254) (58,620) (44,874) Total Costs of Revenues (227,277) (207,471) (158,889) Gross profit 173, , ,496 Selling and distribution (19,497) (18,863) (12,577) General and administration (54,751) (52,595) (38,376) Amortization of pre-operating costs (2,962) (1,635) (665) Total Expenses (77,210) (73,093) (51,618) Income from main operations 96,184 62,364 56,878 Other income 5,029 5,343 3,547 Financial charges (5,892) (4,457) (3,806) Income before Zakat and minority interests 95,321 63,250 56,619 Minority interests (2,503) 2,381 - Income before Zakat 92,818 65,631 56,619 Zakat (4,059) (2,399) (2,972) Net income for the year 88,759 63,232 53,647 Source: Audited Financial Statements 63

85 Management s Discussion and Analysis of Financial Condition and Results of Operations Exhibit 16 2: Income Statement (Percentage of Revenues) Year ended 31 December Operating revenues 77.23% 77.26% 77.95% Trading sales 22.19% 22.33% 21.41% Management fee 0.58% 0.41% 0.64% Total Revenues % % % Cost of operations 39.44% 43.41% 42.64% Cost of sales 17.28% 17.09% 16.78% Total Costs of Revenues % 59.42% Gross profit 43.28% 39.50% 40.58% Selling and distribution 4.87% 5.50% 4.70% General and administration 13.66% 15.34% 14.35% Amortization of pre-operating costs 0.74% 0.48% 0.25% Total Expenses 19.27% 21.31% 19.30% Income from main operations 24.01% 18.19% 21.27% Other income 1.25% 1.56% 1.33% Financial charges 1.47% 1.30% 1.42% Income before Zakat and minority interests 23.79% 18.44% 21.18% Minority interests 0.62% 0.69% - Income before Zakat 23.16% 19.14% 21.18% Zakat 1.01% 0.70% 1.11% Net income for the year 22.15% 18.44% 20.06% Source: Audited Financial Statements Operating revenues represent income from inpatient and outpatient medical services provided by the Company. Operating revenues have provided the majority of revenues, constituting more than 77% of total revenues between 2005 and Revenues from operations grew by 48.5% from SAR million in 2005 to SAR million in Trading sales represent income generated from pharmaceutical sales. As a percentage of total revenues, these represented 22.0% of total revenues on average between 2005 and During the period 2005 to 2007, Mouwasat earned SAR 5.5 million in total management fees from its contract with SUDC to manage and operate the existing Mouwasat hospital in Riyadh. During the last three years, the Company s annual revenues increased at a CAGR of 22.41%, from SAR million in 2005 to SAR million in This growth rate is the result of the following: Adding a total of 20 outpatient clinics and emergency rooms to Mouwasat s healthcare network during the period; Opening of Mouwasat hospital in Jubail, thus adding 84 hospital beds to the network; Achieving a CAGR of 25.3% in the visits made to the Company s outpatient facilities during the period; and Achieving a CAGR of 16% in the number of inpatients admitted to the Company s facilities during the period. The Company s cost of revenues has increased by 43.04% between 2005 and 2007, a rate which is slightly larger than the increase in revenues, which was 49.84%. The Company overcame a slight decrease in gross profit margin from 39.5% in 2006 to 43.28% in 2007, which is an increase of 9.6% as against Net income margin reached 22.15% in 2007 against 18.44% in Cost of revenues is composed of cost of operations and cost of sales, with cost of operations constituting 69.5% of the total expenses in 2007 against 71.7% in Selling and distribution expenses and general and administrative expenses are the major expenses, with selling and distribution constituting 25.27% and general and administrative 70.89% of the total expenses in Amortization constituted 3.84%. 64

86 Management s Discussion and Analysis of Financial Condition and Results of Operations Selling and distribution expense increased by 55.02%, and general and administrative expenses increased by 42.67% in 2007 as compared to The Company s net income has increased at a CAGR of 28.63% during the last three years, mostly due to the increases in revenue and the maintenance of healthy margins Revenues Operating revenues and trading sales are subdivided into three segments inpatient, outpatient, and pharmaceutical. The following table summarizes Company s segmental analysis of revenues: Exhibit 16 3: Breakdown of Revenue (SAR 000) Year ended 31 December Inpatient Revenues 154, , ,534 Cost of revenues (78,962) (83,955) (66,171) Gross profit 75,659 55,996 48,363 Outpatient Revenues 154, , ,201 Cost of revenues (79,061) (80,885) (62,209) Gross profit 75,754 54,303 41,992 Pharmaceutical Revenues 88,917 66,364 46,933 Cost of revenues (69,254) (42,630) (30,509) Gross profit 19,663 23,734 16,424 Management fees 2,318 1,423 1,717 Total Revenues 400, , ,385 Cost of revenues (227,277) (207,471) (158,889) Gross profit (SAR) 173, , ,496 Gross profit margin (%) 43.28% 39.50% 40.58% Source: Audited Financial Statements Revenues from inpatient services increased by 10.51% from SAR million in 2005 to SAR million 2006, and to SAR million in 2007, whereas revenues from outpatient services increased by 29.7% from SAR million in 2005 to SAR million in 2006 and increased by 14.51% in 2007 where it reached SAR million. These two segments jointly contributed to 77.23% of total revenues in 2007, whereas revenues from inpatient contributed 38.6%, outpatient revenues represented 38.6%. The higher growth rate of outpatient revenues was due both to an increase in the average amount charged to customers, which amounted to SAR 135, as well as an increase in the number of visits, which increased from around thousand in 2005 to around thousand in 2006 and to 1,206 thousand in On the other hand, the number of inpatients admitted decreased from around 41.4 thousand in 2006 to around 39.1 thousand in 2007, the average amount charged to inpatients increased by 26.27%, from SAR 3,133 in 2006 to SAR 3,956 in Pharmaceutical sales showed a higher growth rate with 39.98% from SAR 46.9 million in 2005 and SAR 66.3 million in 2006 to SAR 88.9 million in This segment contributed to 19.3% of total revenues in 2006 and 22.2% in The contribution of the management fees was averaged to around 0.54% of total revenues between 2005 and Cost of Revenues and Gross Margins Cost of revenues of inpatient services stood at SAR 84.0 million in 2006 and SAR 79.0 million in 2007, while outpatient services stood at SAR 80.9 million in 2006 and SAR 79.1 million in These were the largest components of cost of revenues in 2007 representing 34.74% and 37.79%, respectively. 65

87 Management s Discussion and Analysis of Financial Condition and Results of Operations The cost of revenues for inpatient and outpatient are mostly composed of employee costs, material consumption, and depreciation, which jointly constitute more than 84% of the cost of operations. Cost of revenues for the inpatient amounted to 19.33% and amounted to 27.10% for outpatient between 2005 and Selling and Distribution Expenses The selling and distribution expenses of the Company increased by 30.0% in 2005 and by 49.9% in 2006 and by 3.36% in The following exhibit presents selling and distribution expenses by major items: Exhibit 16 4: Selling and Distribution Expenses Year ended 31 December SAR '000 Employees costs 6,887 6,521 5,071 Advertising and promotions 3,174 3,751 2,496 Doubtful debts 9,401 7,216 4,222 Others 34,6 1, Total 19,497 18,863 12,577 Percentage of total Employees costs 35.32% 34.57% 40.32% Advertising and promotions 16.28% 19.89% 19.84% Doubtful debts 48.22% 38.25% 33.57% Others 0.18% 7.29% 6.27% Total % % % Source: Audited Financial Statements Doubtful debts and employees costs are the two major items under selling and distribution expenses, representing 48.2% and 35.32% respectively in Doubtful debts expense increased from SAR 7.2 million in 2006 to SAR 9.4 million in 2007 due to the increase of the Company s activity which was accompanied by a larger number of possible uncollectible receivables, in line with SOCPA accounting standards and Mouwasat s accounting policy General and Administrative Expenses The general and administrative expenses of the Company were SAR 38.4 million in 2005, SAR 52.6 million in 2006, and SAR 54.8 million in These figures represent a 37.3% increase in 2006 and a 4.2% increase in Exhibit 16 5: General and Administrative Expenses Year ended 31 December SAR 000 Employee costs 22,309 21,893 14,908 Water and electricity 5,103 5,278 3,672 Depreciation 4,592 4,624 3,573 Support services 5,030 4,508 3,082 Repair and maintenance 3,160 3,511 2,456 Rental 3,885 3,366 2,363 Directors salaries 2,265 2,265 2,265 Vehicle expenses ,124 Communication expenses ,023 Insurance Travel Postage and stationery 1, Others 4,052 3,393 2,379 Total 54,751 52,595 38,376 66

88 Management s Discussion and Analysis of Financial Condition and Results of Operations Year ended 31 December Percentage of total Employee costs 40.74% 41.63% 38.85% Water and electricity 9.32% 10.04% 9.57% Depreciation 8.39% 8.79% 9.31% Support services 9.19% 8.57% 8.03% Repair and maintenance 5.77% 6.68% 6.40% Rental 7.10% 6.40% 6.16% Directors salaries 4.14% 4.31% 5.90% Vehicle expenses 1.82% 1.69% 2.93% Communication expenses 1.22% 1.77% 2.67% Insurance 1.58% 1.52% 1.48% Travel 1.16% 0.91% 1.81% Postage and stationery 2.18% 1.25% 0.69% Others 7.40% 6.45% 6.20% Total % % % Source: Audited Financial Statements Employee costs are the largest general expense, constituting between 38.8% and 40.7% of total general and administrative expenses between in 2005 and Employee costs increased by 46.97% in 2006 to SAR 21.9 million from SAR 14.9 million in 2005, and increased by 1.8% in 2007 to SAR 22.3 million. As is the case for the employee costs under selling and distribution expenses, employee costs of general and administrative expenses have increased due to the overall increase in the Company s level of business, as well as the addition of Mouwasat hospital in Al-Qatif Other Income Other income increased by 50.6% in 2006 from SAR 3.5 million to SAR 5.3 million, mostly due to the profit from the sale of property and equipment, which related to the sale of an unused plot of land in Jubail for SAR 2.5 million in In 2007, other income decreased to SAR 5.03 million reflecting a decrease of 5.9% against Other income represented 1.3% of total revenues and 5.7% of net income in The following exhibit provides the details of other income: Exhibit 16 6: Other Income Year ended 31 December SAR 000 Profit on sale of property and equipment 401 2,520 - Services provided to affiliates Investment income 1, ,677 Other 3,331 2,247 1,411 Total 5,029 5,343 3,547 Percentage of total Profit on sale of property and equipment 7.97% 47.16% - Services provided to affiliates 4.28% 8.09% 12.94% Investment income 21.52% 2.69% 47.27% Other 66.23% 42.06% 39.79% Total % % % Source: Audited Financial Statements Net Income Mouwasat s net income was SAR 53.6 million in 2005, SAR 63.2 million in 2006, and SAR 88.8 million in Between 2005 and 2007, net income grew at a CAGR of 28.64%. 67

89 Management s Discussion and Analysis of Financial Condition and Results of Operations Exhibit 16 7: Net Income Year ended 31 December SAR '000 Revenues 400, , ,385 Gross Profit 173, , ,496 Operating Income 96,184 62,364 56,878 Income before Zakat & Minority Interest 95,321 63,250 56,619 Net Income 88,759 63,232 53,647 Percentage of revenues (margin) Revenues % % % Gross Profit 43.28% 39.50% 40.58% Operating Income 24.01% 18.19% 21.27% Income before Zakat & Minority Interest 23.79% 18.44% 21.18% Net Income 22.15% 18.44% 20.06% Percentage change Revenues 16.83% 28.25% 15.41% Gross Profit 28.00% 24.85% 17.51% Operating Income 54.23% 9.64% 19.76% Income before Zakat & Minority Interest 50.70% 11.71% 17.42% Net Income 40.37% 17.87% 15.46% Source: Audited Financial Statements The Company s gross profit margin was an average of 41.1% during these years. Net income grew in 2007 to SAR 88.8 million up from SAR 63.2 million. The Company s net profit margin increased from 20.1% in 2005 and 18.4% in 2006 to 22.2% in The decrease by 1.6% in 2006 was due the acquisition of Mouwasat hospital in Al-Qatif with the associated increase in general and administrative expenses. 68

90 Management s Discussion and Analysis of Financial Condition and Results of Operations 16.3 Financial Condition, Liquidity and Other Items The following tables summarize the audited balance sheets for the periods ended 31 December 2007, 2006 and 2005: Exhibit 16 8: Balance Sheets (SAR 000) Year ended 31 December Current assts 194, , ,019 Property and equipment 333, , ,334 Investment in associates 6,960 5,878 5,735 Intangible assets 22,294 24, Total assets 557, , ,665 Current liabilities 89,047 92,330 75,393 Long-term loans 88,370 83,123 14,963 Provision for end of services benefits 14,926 14,041 10,305 Total liabilities 192, , ,661 Capital 250, , ,000 Statutory reserve 15,199 6,323 10,011 Retained earnings 89,296 41,913 92,993 Total Equity 354, , ,004 Minority Interest 10,560 9,355 - Total liabilities, shareholders equity, and minority interest 557, , ,665 Source: Audited Financial Statements Exhibit 16 9: Balance Sheets (Percentage of Total Assets) Year ended 31 December Current assets 34.88% 34.17% 40.79% Property and equipment 59.87% 59.77% 57.41% Investment in associates 1.25% 1.18% 1.64% Intangible assets 4.00% 4.88% 0.16% Total assets % % % Current liabilities 15.97% 18.57% 21.50% Long-term loans 15.85% 16.72% 4.27% Provision for end of services benefits 2.68% 2.82% 2.94% Total liabilities 34.50% 38.12% 28.71% Capital 44.85% 50.29% 41.92% Statutory reserve 2.73% 1.27% 2.85% Retained earnings 16.02% 8.43% 26.52% Total Equity 63.60% 61.88% 71.29% Minority Interest 1.89% 1.88% - Total liabilities, shareholders equity, and minority interest % % % Source Audited Financial Statements Total assets increased by 41.7% in 2006 from SAR million to SAR million, and increased by 12.1% in 2007 to SAR million. The increase in total assets in 2006 is attributable to the increase in property and equipment and intangible assets. Property and equipment represented 59.8% and 59.9% of total assets in 2006 and 2007 respectively, and the increase in this caption accounted for 63.4% of the total increase in the Company s assets and the acquisition of Mouwasat hospital in Al-Qatif, which occurred in

91 Management s Discussion and Analysis of Financial Condition and Results of Operations Cash Flows The following tables summarize the audited cash flow statements for the periods ended 31 December 2007, 2006 and Exhibit 16 10: Cash flow (SAR 000) Year ended 31 December Cash generated from (used in) operating activities 89,837 96,540 50,713 Cash used in investing activities (62,249) (74,789) (21,306) Cash generated from (used in) financing activities (29,213) (6,599) (28,233) Increase (decrease) in cash (2,625) 15,152 1,174 Cash at beginning of period 17,823 2,671 1,496 Cash at end of period 15,198 17,823 2,671 Source: Audited Financial Statements The Company s cash balance increased in 2006 from SAR 2.7 million to SAR 17.8 million, and decreased in 2007 to SAR 15.2 million. The significant increase in 2006 is mainly due to the increase in cash generated from operating activities and the decrease in the cash level used in financing activities. Cash from operations grew 90.3% in 2006 and decreased by 6.9% in These large increases are due to a number of factors, including: Increase in revenues, which have grown 16.8% in 2007 against 2006 and 49.8% as against 2005; and Larger proportion of credit expenses as compared to cash expenses in The Company increased its payable balance by SAR 18.7 million in that year. Total cash used in investing activities in 2006 was SAR 74.8 million compared to SAR 21.3 million used in The increase in cash used in investing activities is partly attributable to the Company s additional investment in property, plant, and equipment, which amounted to SAR 43.7 million in The Company has also spent SAR 28.5 million in investments in Total cash used in financing activities in 2007 increased to SAR 29.2 million from SAR 6.6 million in The increase in cash used in financing activities is due to the size of the dividends distributed by the Company in 2007 compared to 2006, where it amounted to SAR 32 million and SAR 15 million respectively. The Company has consistently been able to generate adequate amounts of cash from its operations and is able to use this cash for working capital, expansion, investments, and dividend payments Working Capital Working capital amounted to SAR million, SAR 77.5 million, and SAR 67.6 million as of 31 December 2007, 2006 and 2005, respectively, as follows: Exhibit 16 11: Working Capital (SAR 000) Year ended 31 December Current Assets Inventories 37,478 35,536 26,768 Accounts receivable & prepayments 141, , ,580 Bank balances and cash 15,197 17,823 2,671 Total current assets 194, , ,019 Current Liabilities Accounts payable and accruals 51,203 53,671 34,957 Bank overdrafts - 7,930 12,951 Short term loans 5,029 6,033 5,517 Current portion of term loans 29,480 22,506 19,648 Zakat provision 3,335 2,189 2,320 Total current liabilities 89,047 92,330 75,393 Working capital 105,383 77,529 67,627 Source: Audited Financial Statements 70

92 Management s Discussion and Analysis of Financial Condition and Results of Operations The Company s current assets are mostly composed of accounts receivable and prepayments which constituted 72.9% of total current assets in In turn, accounts receivable and prepayments were mostly comprised of trade receivables (80.4% of total). Inventories, which relate to the materials and drugs used by the hospitals, constituted a further 19.3% of current assets in 2007, while the remaining 7.8% was composed of bank balances and cash. Current liabilities are mostly composed of accounts payable and accruals which constituted 57.5% of total current liabilities in Trade payables constituted 69.2% of accounts payables and accruals. The current portion of term loans constituted a further 33.1% of current liabilities, while the remaining 9.2% was divided among bank overdrafts, short term loans, and Zakat provisions. The Company s working capital increased by 14.6% in 2006, from SAR 67.6 million to SAR 77.5 million, and 35.9% in 2007 to SAR million. This increase in working capital reflects a continuous growth in the Company s healthy financial position and ability to meet short term liabilities. The Board and Management confirm that the Company has working capital sufficient for a period of 12 months following the date of this Prospectus Property, Plant and Equipment This account comprises land, buildings, tools, equipment, furniture, fixtures, vehicles, and construction in progress. Land is not depreciated, whereas buildings have a useful life of 33 years, and tools, equipment, furniture, fixtures, and vehicles have useful lives ranging from 4 to 10 years. The following exhibit summarizes Company s fixed assets broken down per class of assets: Exhibit 16 12: Property, Plant and Equipment (SAR 000) Year ended 31 December Gross book value Beginning 518, , ,821 Acquisitions - 94,183 - Additions 62,964 43,744 21,306 Disposals (1,344) (5,955) - Transfers Ending 579, , ,127 Depreciation Beginning 221, , ,295 Acquisitions - 14,700 - Charge for the year 26,027 25,328 17,497 Disposals (1,024) (3,820) - Ending 246, , ,793 Net book value 333, , ,334 Source: Audited Financial Statements Buildings represented 56.7% of net fixed assets in 2005, 50.7% in 2006, and 46.0% in Tools, equipment, furniture, fixture, and vehicles constituted 32.4% of total net fixed assets in 2006 and 28.3% in Net fixed assets increased by 12.3% in 2007, from SAR million to SAR million Investment in Subsidiary The Company owns 50% of Advance Medical Projects Company, however AMPC is not being controlled by the Company. 71

93 Management s Discussion and Analysis of Financial Condition and Results of Operations Exhibit 16 13: Investment in Subsidiary (SAR 000) Year ended 31 December Beginning of the period 5,878 5,734 4,058 Share from net per year 1, ,676 End of period 6,960 5,878 5,734 Source: Audited Financial Statements Intangible Assets Intangible assets include goodwill, license, and pre-operating costs. In line with SOCPA standards, Mouwasat does not amortize goodwill. However, it is reviewed for any impairment on a yearly basis. License and pre-operating costs are amortized over periods of 3 to 7 years. Exhibit 16 14: Intangibles Assets (SAR 000) Year ended 31 December Beginning Cost 35,862 6,777 6,777 Accumulated amortization (11,612) (6,199) (5,534) Net carrying amount 24, ,243 Ending Cost 36,867 35,862 6,777 Accumulated amortization (14,574) (11,612) (6,199) Net carrying amount 22,293 24, Source: Audited Financial Statements The net book value of intangible assets decreased in 2007 from SAR 24.2 million to SAR 22.3 million Related Party Transactions The Company has a number of related parties, including United Diagnostic Industries, United Medical Services, and Mouwasat Travel. The following exhibit summarizes Mouwasat related party transactions for the years ended 31 December 2007, 2006, and 2005: Exhibit 16 15: Related Party Transactions (SAR 000) Year ended 31 December Dues from related parties 8,919 8,267 29,747 Dues to related parties 1,957 1,476 - Net dues from/(to) related parties 6,962 6,791 29,747 Source: Audited Financial Statements Exhibit 16 16: Nature of related Party Transactions (SAR 000) Year ended 31 December Sales Purchases 7,500 6,900 6,500 Directors salaries 2,300 2,300 2,300 Source: Audited Financial Statements 72

94 Management s Discussion and Analysis of Financial Condition and Results of Operations In 2007, the Company received SAR 0.2 million for providing administrative services to one of its subsidiaries. Moreover, the Company paid SAR 2.3 million as salaries to the Board of Directors. Related transactions include purchases of SAR 1.2 million from United Diagnostic Industries, SAR 2.6 million from United Medical Services, and SAR 3.7 million from Mouwasat Travel. Other than what is stated above, the Board of Directors of the Company certifies that there are no commercial dealings with any member of the Board of Directors, with senior management, with any shareholder who owns more than 5% of the shares of the Company, or with any of their relatives who may directly or indirectly benefit from such dealings, and that none are allowed to vote on such dealings Borrowings Mouwasat obtained credit facilities from commercial banks in the form of bank overdrafts, short-term loans, letters of credit, and letters of guarantee which had a book value of SAR million in 2007 and SAR million in The Company s borrowings are secured by the following: Mortgage over the land, equipment, and furniture of Mouwasat Hospital Dammam and Mouwasat Hospital Al-Qatif, to the Ministry of Finance; Corporate guarantee and assignment of certain contract proceeds to SABB; Corporate guarantee to the National Commercial Bank; Corporate guarantee and assignment of certain contract proceeds to the Saudi Hollandi Bank; and Corporate guarantee to the Arab National Bank. According to the Company s management, all the above facilities are Shariah-compliant. Exhibit 16 17: Book Value of Bank Borrowings (SAR 000) Year ended 31 December Banks overdraft / Islamic - 7,930 12,951 Short-term loans / Islamic 5,029 6,033 5,517 Current portion of long-term loans 29,480 22,506 19,648 Long-term loans / Islamic 88,370 83,123 14,963 Total 122, ,592 53,079 Source: Audited Financial Statements Capital Commitments The Directors of the Company authorized future capital expenditure amounting to SAR 86.8 million in 2007, compared to SAR 72.0 million in 2006, SAR 69.0 million 2005, and SAR 30.0 million in This capital expenditure represents investment in a new medical tower, accommodation for staff, and a clinical building, of which approximately SAR 46.0 million has already been paid as of 31 December Contingent Liabilities The Company s bankers have given guarantees to various parties on behalf of the Company amounting to SAR 30.0 million in 2007, SAR 30.0 million in 2006, and SAR 1.9 million in Minority Interest Minority interests represent 49.0% interest in the Eastern Medical Services Company Limited and 5.0% interest in Specialized Medical Clinic Company Limited. In accordance with an acquisition agreement signed in 2006, results of Eastern Medical Services Company Limited prior to 1 October 2006 (which is the effective date of acquisition) were fully charged to minority shareholders Statement of Management s Responsibility for Financial Information The Management s Discussion and Analysis of Financial Condition and Results of Operations section of the Prospectus has been drafted by the Management of the Company and approved by the Board of Directors. Except as set forth elsewhere in this Prospectus, the Management believes that there has been no material adverse change in the financial position or prospects of the Company since 31 December 2007 until the date of the Prospectus, and accepts full responsibility for the authenticity and accuracy of the information and analysis of financial results and confirms, after making all reasonable inquiries, that full and fair disclosure has been made and there is no other information or documents the omission of which make any information or statements therein misleading. 73

95 17 Accountants Report The audited financial statements as at and for each of the three years ended 31 December 2007, 2006, and 2005 and the notes thereto have been prepared by Ernst & Young, independent auditors of Mouwasat for the above stated periods. Ernst & Young do not themselves, nor do any of their relatives or affiliates, have any shareholding or interest of any kind in the Company. In addition, Ernst & Young have given and not withdrawn their written consent to the publication in the Prospectus of their accountants report. 74

96 Accountants Report Accountants Report To: The Shareholders MOUWASAT MEDICAL SERVICES COMPANY We have audited the accompanying consolidated balance sheet of Mouwasat Medical Services Company (A Closed Saudi Joint Stock Company) as at 31 December 2007 and the related consolidated statements of income, cash flow and changes in equity for the year then ended. These consolidated financial statements are the responsibility of the company s management and have been prepared by them and submitted to us together with all the information and explanations which we required. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the Kingdom of Saudi Arabia. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable degree of assurance to enable us to express an opinion on the consolidated financial statements. In our opinion, the consolidated financial statements taken as a whole present fairly, in all material respects, the consolidated financial position of the company as at 31 December 2007, and the consolidated results of its operations and its consolidated cash flows for the year then ended in accordance with accounting standards generally accepted in the Kingdom of Saudi Arabia. Without qualifying our opinion, we draw attention to the fact that the accompanying financial statements for the years ended 31 December 2007, 2006 and 2005 have been audited by us and separate unqualified audit reports were issued by us on each of these statutory financial statements. for Ernst & Young Abdulaziz Saud Alshubaibi Certified Public Accountant Registration No Safar 1428H 25 February 2007 AlKhobar 75

97 Accountants Report Mouwasat Medical Services Company (Saudi Joint Stock Company) and Subsidiaries Comparative Consolidated Balance Sheet as at December 31, 2007, 2006 and 2005 Notes SAR SAR SAR Assets Current assets Inventories 6 37,477,657 35,536,125 26,768,055 Accounts receivable and prepayments 7 141,755, ,500, ,580,431 Bank balances and cash 15,197,433 17,822,601 2,670,660 Total current assets 194,430, ,859, ,019,146 Property, plant and equipment 3 333,713, ,096, ,333,927 Investment in an associate 4 6,960,405 5,878,135 5,734,512 Intangible assets 5 22,293,453 24,250, ,835 Total Assets 557,397, ,084, ,665,420 Liabilities & Stockholders Equity Current liabilities: Accounts payable and accruals 9 51,203,356 53,671,252 34,956,693 Bank overdrafts - 7,930,275 12,950,839 Short term loans 10 5,029,418 6,032,790 5,516,667 Current portion of term loans 15 29,479,589 22,506,270 19,648,367 Zakat provision 11 3,334,684 2,189,204 2,320,000 Total current liabilities 89,047,047 92,329,791 75,392,566 Non-current Liabilities: Term loans 15 88,369,779 83,122,778 14,963,436 Employees' terminal benefits 14,926,392 14,040,891 10,305,058 Minority interest 25 10,559,635 9,354,652 - Stockholders Equity: Capital ,000, ,000, ,000,000 Statutory reserve 14 15,199,050 6,323,197 10,010,883 Retained earnings 89,295,810 41,913,127 92,993,477 Total stockholders' equity 354,494, ,236, ,004,360 Total liabilities and stockholders equity 557,397, ,084, ,665,420 The attached notes 1 to 25 form part of these consolidated financial statements. 76

98 Accountants Report Mouwasat Medical Services Company (Saudi Joint Stock Company) and Subsidiaries Comparative Consolidated Statement of Income for the years ended December 31, 2007, 2006 and 2005 Notes SAR SAR SAR Operating revenues 309,435, ,935, ,418,024 Trading sales 88,916,756 76,568,406 57,249,889 Management fee 17 2,317,917 1,423,428 1,717,145 Total revenues 400,670, ,927, ,385,058 Cost of operations (158,022,607) (148,850,262) (114,014,635) Cost of sales (69,253,916) (58,620,314) (44,874,290) Total cost of revenues (227,276,523) (207,470,576) (158,888,925) Gross Profit 173,393, ,456, ,496,133 Selling and distribution expenses 18 (19,496,506) (18,862,998) (12,577,280) General and administration expenses 19 (54,750,778) (52,594,620) (38,375,617) Amortisation of pre-operating costs 5 (2,962,117) (1,634,962) (664,787) Total expenses (77,209,401) (73,092,580) (51,617,684) Operating income 96,184,243 62,364,057 56,878,449 Other income 20 5,029,006 5,343,427 3,546,536 Financial charges (5,892,440) (4,457,406) (3,805,970) Income before Zakat and minority interests 95,320,809 63,250,078 56,619,015 Minority interest 25 (2,502,853) 2,381,348 - Income before Zakat 92,817,956 65,631,426 56,619,015 Zakat 11 (4,059,420) (2,399,462) (2,972,222) Net income 88,758,536 63,231,964 53,646,793 Earnings per share The attached notes 1 to 25 form part of these consolidated financial statements. 77

99 Accountants Report Mouwasat Medical Services Company (Saudi Joint Stock Company) and Subsidiaries Comparative Consolidated Statement of Cash Flows for the years ended December 31, 2007, 2006 and SAR SAR SAR Cash Flows from Operating Activities: Income for the year before zakat and minority interests 95,320,809 63,250,078 56,619,015 Adjustments for: Depreciation 26,027,279 25,328,231 17,497,460 Amortisation of pre-operating costs 2,962,117 1,634, ,787 Employees terminal benefits, net 885,501 3,735, ,793 Investment income (1,082,270) (143,623) (1,676,500) Financial charges 5,892,440 4,457,406 3,805,970 (Profit) loss on sale of property and equipment (400,642) (2,520,000) - Write off of property, plant and equipment - 905,623 - Changes in operating assets and liabilities Inventories (1,941,532) (8,768,070) (5,034,167) Receivables (26,552,684) (2,920,009) (15,104,236) Payables (2,467,896) 18,714,559 (611,655) Cash from operations 98,643, ,674,990 56,741,467 Financial charges paid (5,892,440) (4,457,406) (3,805,970) Zakat paid (2,913,940) (2,677,928) (2,222,222) Net cash from operating activities 89,836,742 96,539,656 50,713,275 Cash Flows from Investing Activities: Purchase of property and equipment (62,964,274) (43,743,822) (21,305,586) Proceeds from sale of property and equipment 721,104 3,750,000 - Investment in a subsidiary (including goodwill) - (28,560,000) - Effect of consolidating acquired subsidiary * - (3,069,065) - License related costs (1,005,413) (3,165,960) - Net cash used in investing activities (63,248,583) (74,788,847) (21,305,586) Cash Flows from Financing Activities: Bank overdraft (7,930,275) (5,020,564) (6,068,226) Term loan proceeds 33,313,328 35,459,165 - Term loan repayments (21,093,008) (22,578,592) (20,481,704) Contribution by minority shareholder to the capital of a - 25,000 - subsidiary Short term loans (1,003,372) 516,123 (1,683,333) Dividends paid (32,500,000) (15,000,000) - Net cash (used in) from financing activities (29,213,327) (6,598,868) (28,233,263) Increase (decrease) in bank balances and cash (2,625,168) 15,151,941 1,174,426 Bank balances and cash at the beginning of the year 17,822,601 2,670,660 1,496,234 Bank balances and cash at the end of the year 15,197,433 17,822,601 2,670,660 Non cash item: The dividends of minority shareholders of a subsidiary amounting to SR 1,297,870 have been off set against the balance due from partners and accordingly excluded from above cash flow statement as this transaction does not have any cash impact. The attached notes 1 to 25 form part of these consolidated financial statements. 78

100 Accountants Report Mouwasat Medical Services Company (Saudi Joint Stock Company) and Subsidiaries Comparative Consolidated Statement of Changes in Stockholders Equity for the years ended December 31, 2007, 2006 and 2005 Share capital Statutory reserve Retained earnings Total SAR SAR SAR SAR Balance at 31 December ,000,000 4,646,204 44,711, ,357,567 Net income for the year ,646,793 53,646,793 Transfer to statutory reserve (note 14) - 5,364,679 (5,364,679) - Balance at 31 December ,000,000 10,010,883 92,993, ,004,360 Net income for the year ,231,964 63,231,964 Transfer to statutory reserve (note14) - 6,323,197 (6,323,197) - Dividends (note 13) - - (15,000,000) (15,000,000) Issue of capital 103,000,000 (10,010,883) (92,989,117) - Balance at 31 December ,000,000 6,323,197 41,913, ,236,324 Net income for the year ,758,536 88,758,536 Transfer to statutory reserve (note 14) - 6,323,197 (6,323,197) - Dividends (note 13) - - (32,500,000) (32,500,000) Balance at December 31, ,000,000 15,199,050 89,295, ,494,860 The attached notes 1 to 25 form part of these consolidated financial statements. 79

101 Accountants Report Mouwasat Medical Services Company (Saudi Joint Stock Company) and Subsidiaries Notes to Comparative Consolidated Financial Statements For the years December 31, 2007, 2006 and activities: The parent company is registered in Saudi Arabia under Commercial Registration number dated 12 Ramadan 1417H corresponding to 22 January The parent company was converted into a closed Saudi Joint Stock Company in accordance with Ministerial Resolution No 1880 dated 4 Dhu al Hijja 1426 (corresponding to 4 January 2006). The parent through its multiple branches is engaged in the acquisition, management, operation and maintenance of hospitals, medical centers, drug stores, pharmacies and wholesale of medical equipment and drugs. The parent company is owned 90% (2006 and 2005: 90%) by Saudi nationals and institutions, and 10% (2006 and 2005: 10%) by a Bahraini company. The consolidated financial statements include the financial statements of the parent company and its following subsidiaries whose financing and operating policies are controlled by the parent company: Name of Subsidiary Percentage of ownership Eastern Medical Services Company Limited 51% Specialized Medical Clinic Company Limited 95% 2- Significant accounting policies: The consolidated financial statements of Mouwasat Medical Services Company (the Group ) have been prepared in accordance with accounting standards generally accepted in the Kingdom of Saudi Arabia. The significant accounting policies adopted are as follows: Basis of consolidation The financial statements of the subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies. All inter-company balances and transactions that are recognised in the respective financial statement are eliminated in full. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the parent obtains control, and continue to be consolidated until the date that such control ceases. Accounting convention The consolidated financial statements are prepared under the historical cost convention. Depreciation All property and equipment are initially recorded at cost. Cost, other than cost of freehold land and construction in progress is depreciated on a straight-line basis over the estimated useful lives of the assets. Expenditure for repair and maintenance are charged to income. Improvements that increase the value or materially extend the useful life of the related assets are capitalized. Financial charges incurred on loans utilised for construction of new projects are capitalised with the related assets. Capitalisation of financial charges ceases when the related project is completed. Amortisation Costs that will benefit future years are treated as intangible assets and amortised over the estimated period of benefit. These mainly represent a license and pre-operating costs of certain hospitals and dispensaries. 80

102 Accountants Report Mouwasat Medical Services Company (Saudi Joint Stock Company) and Subsidiaries Notes to Comparative Consolidated Financial Statements For the years December 31, 2007, 2006 and 2005 Goodwill Goodwill arising on acquisition of a subsidiary is accounted for as an intangible asset. Such goodwill is not amortised, but reviewed for any impairment in value on an annual basis. Inventories Inventories are stated at the lower of cost and market value after making due allowance for any obsolete or slow moving items. Cost is determined on a weighted average basis. Investment in an associate Investment in a company wherein the Group does not have control over the financial and operating policies is accounted for under the equity method in accordance with the relevant standards. Accounts receivable Accounts receivable include billings made on credit which are outstanding at the balance sheet date, net of provision for doubtful debts. Accounts payable and accruals Liabilities are recognised for amounts to be paid in the future for goods when risks and rewards attributable to goods are transferred to the Group or services are received, whether or not billed to the Group. Zakat Zakat is provided for in accordance with Saudi Arabian fiscal regulations. The provision is charged to the consolidated income statement. Additional amounts, if any, that may become due on finalisation of the assessment are accounted for in the year in which the assessment is finalised. Employees terminal benefits Provision is made for amounts payable under the Saudi Arabian labour law applicable to employees accumulated periods of service at the balance sheet date. Revenue recognition Revenue is recognised when goods are delivered or services are rendered to customers. Foreign currencies Transactions in foreign currencies are recorded in Saudi Riyals at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All differences are taken to consolidated income statement. Fair values The fair values of commission bearing items are estimated based on discounted cash flows using commission rates for items with similar terms and risk characteristics. Derivative financial instruments The company uses commission rate swaps to hedge risks associated with commission rate fluctuations on loans. These are included in the balance sheet at fair value and resultant gain or loss is recognized in the consolidated income statement. The fair values of commission rate swap contracts are included under accounts receivable and prepayments in case of favourable fair value and in accounts payable and accruals in case of unfavourable fair value. 81

103 Accountants Report Mouwasat Medical Services Company (Saudi Joint Stock Company) and Subsidiaries Notes to Comparative Consolidated Financial Statements For the years December 31, 2007, 2006 and 2005 Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. Expenses Selling and distribution expenses are those that specifically relate to marketing personnel, advertisements, promotions as well as bad debts expense. All other expenses, other than direct costs, amortisation of deferred charges and financial charges, are classified as general and administration expenses. Segmental reporting A segment is a distinguishable component of the Group that is engaged either in providing products or services (a business segment) or in providing products or services within a particular economic environment (a geographic segment), which is subject to risks and rewards that are different from those of other segments. 3- Property and equipment: The estimated useful lives of the assets for the calculation of depreciation are as follows: Freehold buildings Tools and equipment Furniture & fixtures Motor vehicles 33 years 4 to 10 years 4 to 10 years 4 years 82

104 Accountants Report Mouwasat Medical Services Company (Saudi Joint Stock Company) and Subsidiaries Notes to Comparative Consolidated Financial Statements For the years December 31, 2007, 2006 and 2005 Freehold Land Buildings Tools, equipment, furniture, fixtures, and vehicles Construction in progress Total 2007 Total 2006 Total 2005 SR SR SR SR SR SR SR Cost: At the beginning of the year 29,650, ,587, ,368,315 20,491, ,097, ,126, ,821,121 Acquisition of subsidiary ,182,708 - Additions 10,303,010 1,959,438 15,632,287 35,069,539 62,964,274 43,743,822 21,305,586 Transfer - 9,317, ,694 (9,907,757) Disposals (238,000) - (1,106,121) - (1,344,121) (5,955,355) - At the end of the year 39,715, ,863, ,485,175 45,653, ,718, ,097, ,126,707 Depreciation: At the beginning of the year - 80,949, ,051, ,000, ,792, ,295,320 Acquisition of subsidiary ,699,625 - Charge for the year - 8,251,476 17,775,803-26,027,279 25,328,231 17,497,460 Disposals - - (1,023,659) - (1,023,659) (3,819,732) - At the end of the year - 89,200, ,803, ,004, ,000, ,792,780 Net book amounts: At 31 December ,715, ,662,989 94,681,447 45,653, ,713,511 At 31 December ,650, ,637,964 96,316,731 20,491, ,096,978 At 31 December ,781, ,353,397 61,097,224 7,102, ,333,927 Construction in progress represents construction of new Mouwasat Medical Tower project in Dammam Hospital. Financial charges amounting to SR 1.5 million (2006: SR 0.5 million 2005: Nil) have been capitalised during the year on this project and included in construction work in progress. 83

105 Accountants Report 4- Investment in an associate: Mouwasat Medical Services Company (Saudi Joint Stock Company) and Subsidiaries Notes to Comparative Consolidated Financial Statements For the years December 31, 2007, 2006 and 2005 The Group has 50% ownership interest in Advance Medical Project Company (AMPC), a limited liability company registered in the Kingdom of Saudi Arabia SAR SAR SAR Balance at the beginning of the year 5,878,135 5,734,512 4,058,012 Share in the net results for the year 1,082, ,623 1,676,500 Balance at the end of the year 6,960,405 5,878,135 5,734,512 The Group does not have control over AMPC and hence it is accounted for as an associate. 84

106 Accountants Report Mouwasat Medical Services Company (Saudi Joint Stock Company) and Subsidiaries Notes to Comparative Consolidated Financial Statements For the years December 31, 2007, 2006 and Intangible assets Goodwill License Pre operating costs Total 2007 Total 2006 Total 2005 SR SR SR SR SR SR Cost At the beginning of the year 16,371,000 3,165,960 16,324,773 35,861,733 6,776,919 6,776,919 Acquisition of a subsidiary ,547,854 - Additions - 1,005,413-1,005,413 19,536,960 - At 31 December 16,371,000 4,171,373 16,324,773 36,867,146 35,861,733 6,776,919 Amortisation At the beginning of the year ,611,576 11,611,576 6,199,084 5,534,297 Acquisition of a subsidiary ,777,530 - Charge for the year - 1,327,155 1,634,962 2,962,117 1,634, ,787 At end of the year - 1,327,155 13,246,538 14,573,693 11,611,576 6,199,084 Net book amount At 31 December ,371,000 2,844,218 3,078,235 22,293,453 At 31 December ,371,000 3,165,960 4,713,197 24,250,157 At 31 December , ,835 Goodwill is not amortised. License cost is amortised over 3 years and pre-operating costs are amortised over periods of 3 to 7 years. 85

107 Accountants Report Mouwasat Medical Services Company (Saudi Joint Stock Company) and Subsidiaries Notes to Comparative Consolidated Financial Statements For the years December 31, 2007, 2006 and Inventories SAR SAR SAR Surgical instruments and consumables 18,618,349 16,294,312 13,411,194 Pharmaceuticals, cosmetics and others 18,232,159 18,562,987 12,652,474 Spare parts 627, , ,387 Total 37,477,657 35,536,125 26,768, Accounts receivable and prepayments SAR SAR SAR Trade accounts receivable 114,050,139 95,469,283 74,119,106 Amounts due from affiliates * 8,918,731 8,266,612 29,746,874 Advances to suppliers 7,430,213 5,036,270 2,406,353 Prepaid expenses 5,185,789 3,564,881 2,161,817 Accrued income 1,772,246 1,580,956 1,271,076 Staff loans and advances 1,003,392 1,135,451 1,125,206 Other receivables 3,394,744 1,446,987 2,749,999 Total 141,755, ,500, ,580, Related party transactions During the year, the Group provided administration services to an affiliate. The total amount charged to the affiliate in this respect amounts to SR 0.2 million (2006: SR 0.3 million and 2005: SR 0.5 million). Also during the year, the Group paid SR million as directors salaries (2006: SR million and 2005: SR million). The Group s purchases include SR 1.2 million (2006: SR 0.9 million and 2005: 1.2 million) from United Diagnostic Industries, SR 2.6 million (2006: SR 1.5 million and 2005: SR 1.9 million) from United Medical Services, and SR 3.7 million (2006: SR 3.4 million and 2005: SR 3.2 million) from Mouwasat Travel. The parent company has provided guarantees on behalf of an affiliate. Such guarantees are disclosed in note 22. Pricing policies and terms of payment for these transactions are approved by the Group s management. Amounts due from and due to affiliates are shown in notes 7 and 9 respectively. 9- Accounts payable and accruals SAR SAR SAR Trade accounts payable 35,452,289 37,064,271 24,791,068 Accruals 10,912,203 10,666,634 8,221,315 Due to affiliates (note 8) 1,957,398 1,475,701 - Other payables 2,881,466 4,464,646 1,944,310 Total 51,203,356 53,671,252 34,956, Short term loans Short term loans are secured by corporate guarantees of the parent company. These carry commission at normal commercial rates. All these facilities were Shariah compliant. 86

108 Accountants Report Mouwasat Medical Services Company (Saudi Joint Stock Company) and Subsidiaries Notes to Comparative Consolidated Financial Statements For the years December 31, 2007, 2006 and Zakat Zakat charge for the year represents provision made by the parent company as well as one of the subsidiaries for the year. Status of assessment Zakat assessments for the parent company and subsidiaries have been agreed with the Department of Zakat and Income Tax up to Share capital Share capital is divided into 25,000,000 shares of SR 10 each (2006: 25,000,000 shares of SR 10 each and 2005: SR 2,940,000 shares of SR 50 each). During 2006, the share capital of the parent company was increased by capitalisation of statutory reserve and retained earnings. Simultaneously, the denomination of each share was reduced from SR 50 to SR 10. In view of the above changes, the earnings per share for 2005 have been calculated based on the adjusted number of shares outstanding at 31 December Dividends The directors of the parent company have proposed and paid interim dividends of SR 12.5 million (SR 0.5 per share (2006: SR 15 million (0.6 per share) and 2005: Nil) during the year and have further proposed a final dividend of SR 22.5 (SR 0.9 per share) (2006: SR 20 million (SR0.6 per share) and 2005: Nil) for approval at the AGM. 14- Statutory reserve As required by Saudi Arabian Regulations for Companies, 10% of the net income for the year has been transferred to the statutory reserve. The parent company may resolve to discontinue such transfers when the reserve totals 50% of the capital. The reserve is not available for distribution. 87

109 Accountants Report 15- Term loans Mouwasat Medical Services Company (Saudi Joint Stock Company) and Subsidiaries Notes to Comparative Consolidated Financial Statements For the years December 31, 2007, 2006 and 2005 Ministry of finance Saudi British Bank National Commercial Bank Arab National Bank Saudi Hollandi Bank Total 2007 Total 2006 Total 2005 SAR SAR SAR SAR SAR SAR SAR SAR At the beginning of the year 33,912,410 26,000,000 11,257,473 9,459,165 25,000, ,629,048 34,611,803 55,093,507 Acquisition of a subsidiary ,136,672 - Repaid during the year (4,411,643) (4,333,335) (5,403,586) - (6,944,444) (21,093,008) (22,578,592) (20,481,704) Obtained during the year 4,500, ,813,328-33,313,328 35,459,165 - At the end of the year 34,000,767 21,666,665 5,853,887 38,272,493 18,055, ,849, ,629,048 34,611,803 Current portion 4,411,643 5,777,778 5,853,887 5,102,948 8,333,333 29,479,589 22,506,270 19,648,367 Non current portion 29,589,124 15,888,887-33,169,545 9,722,223 88,369,779 83,122,778 14,963,436 The term loans from Ministry of Finance are commission free and include two separate loans obtained by parent company and its subsidiary Eastern Medical Company Limited. Those loans are secured by a mortgage over the land, equipment and furniture of Mouwasat Hospital-Dammam and Mouwasat Hospital-Qateef. The loans are repayable in sixteen equal annual installments each of SR 2,481,710 for parent company and SR 1,929,933 by a subsidiary company. The last installment is payable on 17/5/1429H (corresponding to 23 May 2008) and on 03/10/1442H (corresponding to 15 May 2021) by parent company and subsidiary respectively. During the year, the parent company has entered into a new loan agreement with the Ministry of Finance for a total value of SR 10.2 million. Parent company has obtained and utilised SR 4.5 million during the year. The loan is repayable in 16 monthly installments starting after completing four years from the date of agreement. Loan from Saudi British Bank (Murabaha Liquidity Finance) is repayable in fifty four monthly installments of SR 481,481 each, the last being payable on 31 July The loan is secured by corporate guarantee of the parent company and assignment of certain contract proceeds. Loan from National Commercial Bank is secured by corporate guarantee of the parent company and is to be repaid in 27 installments of SR 450,209 each, the last being payable on 31 December Loan obtained for Eastern Medical Services from Saudi Hollandi Bank is secured by corporate guarantee of the parent company and the assignment of certain contract proceeds. The loan is repayable in thirty six monthly installments of SR 694,444 each. The last installment is payable on 15/3/1431H (corresponding to 1 March 2010). Tawaruq loan from Arab National Bank is secured by corporate guarantee of the parent company. The total Tawaruq loan facility amounts to SR 40 million which can be drawn upto 1 April The term of the loan is seven years (including two years grace period) and is repayable in equal annual installments beginning 1 May All of the above facilities are Shariah compliant. Installments of various loans due in 2008 are shown as current liability. 88

110 Accountants Report 16- Segmental Information Business segments: Mouwasat Medical Services Company (Saudi Joint Stock Company) and Subsidiaries Notes to Comparative Consolidated Financial Statements For the years December 31, 2007, 2006 and 2005 Consistent with the company s internal reporting process, business segments have been approved by management in respect of the company s activities. Transactions between the business segments are reported as recorded by the company s transfer pricing system. The company s revenue, gross profit, property, plant and equipment, total assets, and total liabilities, by business segment, are as follows: Inpatient Outpatient Pharmaceutical Management Total SAR SAR SAR SAR SAR 31 December 2007 Revenue for the year 154,620, ,815,051 88,916,756 2,317, ,670,167 Gross profit for the year 75,658,831 75,754,056 19,662,840 2,317, ,393,644 Property and equipment, 129,541, ,704,771 74,467, ,713,511 net book value Total assets 216,353, ,626, ,417, ,397,713 Total liabilities 74,658,028 74,751,994 42,933, ,343, December 2006 Revenue for the year 139,951, ,188,116 66,364,074 1,423, ,927,213 Gross profit for the year 55,996,287 54,303,212 23,733,710 1,423, ,456,637 Property and equipment, 129,405, ,225,915 45,465, ,096,978 net book value Total assets 250,408, ,024,017 72,380, ,813,734 Total liabilities 81,409,818 77,876,646 30,936, ,222, December 2005 Revenue for the year 114,533, ,201,228 46,932,921 1,717, ,385,058 Gross profit for the year 48,363,047 41,991,758 16,424,183 1,717, ,496,133 Property and equipment, 91,074,688 81,916,115 28,342, ,333,297 net book value Total assets 183,802, ,197,082 41,665, ,665,420 Total liabilities 39,751,014 44,282,638 16,627, ,661,060 Geographical Segments All of the Group s operating assets and principal markets of activity are located in the Kingdom of Saudi Arabia. 17- Profit sharing and operating agreement The parent company entered into a lease agreement for dispensary building in Hofuf with profit sharing feature based on agreed upon formula. The lease agreement is for 15 years starting from 1st February The parent company has also entered into an agreement for management of operations of a hospital in Riyadh at an agreed management fee and profit sharing. During 2006, the parent company entered into an agreement for management of operations of one of its subsidiaries, at an agreed management fee based on an agreed upon formula. Such fee has been eliminated in preparation of these consolidated financial statements. 89

111 Accountants Report 18- Selling and distribution expenses Mouwasat Medical Services Company (Saudi Joint Stock Company) and Subsidiaries Notes to Comparative Consolidated Financial Statements For the years December 31, 2007, 2006 and SAR SAR SAR Employee costs 6,886,999 6,521,384 5,070,975 Advertising and promotions 3,174,301 3,751,369 2,495,667 Doubtful debts 9,400,540 7,215,598 4,222,323 Others 34,663 1,374, ,315 Total 19,496,506 18,862,998 12,577, General and administrative expenses SAR SAR SAR Employee costs 22,309,052 21,893,469 14,908,070 Water and electricity 5,103,313 5,278,148 3,672,404 Depreciation 4,952,262 4,624,348 3,573,130 Support services 5,029,779 4,507,970 3,081,860 Repair and maintenance 3,159,936 3,510,776 2,456,484 Rental 3,884,909 3,365,912 2,363,336 Directors salaries 2,265,000 2,265,000 2,265,000 Vehicle expenses 997, ,344 1,123,549 Communication expenses 665, ,015 1,023,489 Insurance 863, , ,656 Travel 635, , ,004 Postage and stationery 1,192, , ,166 Others 4,051,746 3,393,425 2,379,469 Total 54,750,778 52,594,620 38,375, Other income SAR SAR SAR Profit on sale of property and equipment 400,642 2,520,000 - Services provided to affiliates 215, , ,751 Investment income 1,082, ,623 1,676,500 Others 3,330,910 2,247,491 1,411,285 Total 5,029,006 5,343,427 3,546, Capital commitments The directors have authorised future capital expenditure amounting to SR 86.8 million (2006: SR 72 million and 2005: SR 69 million) mainly in connection with new medical tower, and expansion in Jubail Hospital, of which approximately SR 46 million (2006: SR 12 million and 2005: SR 7 million) was spent by the end of the year. 22- Contingent liabilities The parent company has provided guarantees on behalf of an affiliate amounting to SR 30 million (2006: SR 30 million and 2005: 1.9 million). 90

112 Accountants Report Mouwasat Medical Services Company (Saudi Joint Stock Company) and Subsidiaries Notes to Comparative Consolidated Financial Statements For the years December 31, 2007, 2006 and Risk management Commission rate risk The Group is subject to commission rate risk on its commission bearing liabilities, which comprise term loans. Credit risk The Group seeks to limit its credit risk with respect to customers by monitoring outstanding receivables. Adequate allowances are made for debts considered doubtful. At the balance sheet date, no significant credit risk was identified by the management. Liquidity risk The Group limits its liquidity risk by ensuring that bank facilities are available. The Group s invoicing terms require amounts to be paid within 60 to 120 days of the date of the invoice. Trade payables are normally settled within 60 to 90 days of the date of purchase. Currency risk The Group is subject to fluctuations in foreign exchange rates in the normal course of its business. The Group did not undertake significant transactions in currencies other than Saudi Riyals and US Dollars, during the year. 24- Fair values of financial instruments Fair value is the amount for which an asset could be exchanged, or a liability settled between knowledgeable willing parties in an arm s length transaction. The Group s financial assets consist of bank balances, cash and receivables, its financial liabilities consist of term loans, payables and accrued expenses. The fair values of financial instruments are not materially different from their carrying values. 25- Minority interests Minority interests represent 49% (2006: 49% and 2005: Nil) interest in the Eastern Medical Services Company Limited and 5% (2006: 5% and 2005: N/A) interest in Specialized Medical Clinic Company Limited. 91

113 18 Recent Developments 18.1 Management s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of Mouwasat financial condition and results of operations are based on and should be read in conjunction with the audited financial statements of Mouwasat Medical Services Company as at and for the years ended 31 December 2008 and 2007 (the Audited Financial Statements ), which have been audited by Ernst & Young ( E&Y ). E&Y do not themselves, nor do any of their relatives or affiliates, have any shareholding or interest of any kind in the Company. They have furnished and not withdrawn their written consent to the reference in the Prospectus to their role as auditors of the Company for the fiscal years ended 31 December 2008 and The Management s Discussion and Analysis of Financial Condition and Results of Operations section contains forwardlooking statements that involve risks and uncertainties. Actual results for the Company could differ materially from those contemplated by these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Prospectus, particularly under the Risk Factors section Director s Declaration for Financial Information The Directors declare that the financial information presented in the Prospectus are extracted without material change from the Audited Financial Statements and that such statements have been prepared in accordance with SOCPA accounting standards. The Directors further declare that there has been no material adverse change in the financial or trading position of the Company from 31 December 2008 up to and including the date of the Prospectus Results of Operations The following tables summarize the audited income statements for the periods ended 31 December 2008 and Exhibit 18 1: Income Statement (SAR 000) Year ended 31 December Operating revenues 346, ,435 Trading sales 105,061 88,917 Management fee 2,908 2,318 Total Revenues 454, ,670 Cost of operations (178,609) (158,023) Cost of sales (75,043) (69,254) Total Costs of Revenues (253,652) (227,277) Gross Profit 200, ,394 Selling and distribution (24,366) (19,497) General and administration (63,545) (54,751) Amortization of pre-operating assets (2,748) (2,962) Total Expenses (90,658) (77,209) Income from main operations 110,242 96,184 Other (expenses)/income (1,078) 5,029 Financial charges (3,655) (5,892) Income before Zakat and minority interests 105,499 95,321 Minority interest (3,989) (2,503) Income before Zakat 101,510 92,818 Zakat (4,438) (4,059) Net income for the year 97,072 88,759 Source: Audited Financial Statements 92

114 Recent Developments Exhibit 18 2: Income Statement (Percentage of Revenues) Year ended 31 December Operating revenues 76.25% 77.23% Trading sales 23.11% 22.19% Management fee 0.64% 0.58% Total Revenues % % Cost of operations (39.29%) (39.44%) Cost of sales (16.51%) (17.28%) Total Costs of Revenues (55.80%) (56.72%) Gross Profit 44.20% 43.28% Selling and distribution (5.36%) (4.87%) General and administration (13.98%) (13.66%) Amortization of pre-operating assets (0.60%) (0.74%) Total Expenses (19.94%) (19.27%) Income from main operations 24.25% 24.01% Other (expenses)/income (0.24%) 1.26% Financial charges (0.80%) (1.47%) Income before Zakat and minority interests 23.21% 23.79% Minority interest (0.88) (0.62%) Income before Zakat 22.33% 23.17% Zakat (0.98%) (1.01%) Net income for the year 21.36% 22.15% Source: Audited Financial Statements Operating revenues represent income from inpatient and outpatient medical services provided by the Company. Operating revenues have provided the majority of revenues, constituting more than 77.2% and 76.2% of total revenues in 2007 and Revenues from operations grew by 12% from SAR million in 2007 to SAR million in Trading sales represent income generated from pharmaceutical sales. As a percentage of total revenues, these represented 22.2% and 23.1% of total revenues on average between 2007 and The management fees represent the income for its contract with SUDC to manage and operate the Najd Consulting Hospital in Riyadh. Management fees were SAR 2.3 million and SAR 2.9 million in 2007 and 2008 respectively. The Company s cost of revenues has increased by 11.6% from SAR million in 2007 to SAR in 2008, however as a percentage of total revenues, cost of revenues decreased from 56.7% in 2007 to 55.8% in In 2008, gross profit margin grew to 44.2% against 43.3 in 2007, representing a growth of 15.9%. Net profit margin represented 21.4% of total revenues in 2008, while it had represented 22.1% in Cost of revenues is composed of cost of operations and cost of sales, with cost of operations constituting 70.4% of the total in 2008 against 69.5% in Selling and distribution expenses and general and administrative expenses are the major expenses, with selling and distribution constituting 26.9% and general and administrative 70.1% of the total in Amortization constituted 3.0%. Selling and distribution expense increased by 24.9%, and general and administrative expenses increased by 16.1% in 2008 as compared to In 2008, The Company s growth in net income was 9.4%, mainly due to the increase in revenue and the maintenance of healthy margins Revenues Operating revenues and trading sales are subdivided into three segments - inpatient, outpatient, and pharmaceutical. The following table summarizes the Company s segmental analysis of revenues: 93

115 Recent Developments Exhibit 18 3: Breakdown of Revenue (SAR 000) Year ended 31 December Inpatient Revenues 173, ,620 Cost of revenues 89,248 78,961 Gross profit 83,934 75,659 Outpatient Revenues 173, ,815 Cost of revenues 89,360 79,061 Gross profit 84,040 75,754 Pharmaceutical Revenues 105,062 88,917 Cost of revenues 75,043 69,254 Gross profit 30,019 19,663 Management fees 2,908 2,318 Total Revenues 454, ,670 Cost of revenues 253, ,276 Gross profit (SAR) 200, ,394 Gross profit margin (%) 44.19% 43.27% Source: Audited Financial Statements Revenues from inpatient services increased by 12.0% from SAR million in 2007 to SAR million in 2008, whereas revenues from outpatient services increased by 12.0% from SAR million in 2007 to SAR million in These two segments jointly contributed to 76.2% of total revenues in 2008, with each contributing about 38.1%. Pharmaceutical sales showed a higher growth rate with 18.1% from SAR 88.9 million in 2007 to SAR million in This segment contributed to 23.1% of total revenues in The contribution of the management fees was averaged to around 0.6% of total revenues in Cost of Revenues and Gross Margins Cost of revenues of inpatient services stood at SAR 79.0 million in 2007 and SAR 89.2 million in 2008, while outpatient services stood at SAR 79.1 million in 2007 and SAR 89.4 million in These were the largest components of cost of revenues in 2008, with both representing 35.2% each of the total. The cost of revenues for inpatient and outpatient are mostly composed of employee costs, material consumption, and depreciation. Cost of revenues for inpatient amounted to 13.0% and amounted to 13.0% for outpatient in Selling and Distribution Expenses Selling and distribution expenses of the Company increased by 24.9% from 2007 to The following exhibit presents selling and distribution expenses by major items: 94

116 Recent Developments Exhibit 18 4: Selling and Distribution Expenses Year ended 31 December SAR '000 Employees costs 7,763 6,886 Advertising and promotions 3,240 3,174 Doubtful debts 13,329 9,401 Others Total 24,366 19,496 Percentage of total Employees costs 31.86% 35.32% Advertising and promotions 13.30% 16.28% Doubtful debts 54.71% 48.22% Others 0.13% 0.18% Total % % Source: Audited Financial Statements Doubtful debts and employees costs are the two major items under selling and distribution expenses, representing 54.7% and 48.2% respectively in Doubtful debts expense increased from SAR 9.4 million in 2007 to SAR 13.3 million in 2008 due to the increase of the Company s activity which was accompanied by a larger number of possible uncollectible receivables, in line with SOCPA accounting standards and Mouwasat s accounting policy General and Administrative Expenses The general and administrative expenses of the Company were SAR 54.8 million in 2007 and SAR 63.5 million in These figures represent a 15.9%% increase in Exhibit 18 5: General and Administrative Expenses Year ended 31 December SAR 000 Employee costs 25,793 22,309 Water and electricity 5,316 5,103 Depreciation 4,931 4,592 Support services 5,846 5,030 Repair and maintenance 3,602 3,159 Rental 5,101 3,885 Directors salaries 2,265 2,265 Vehicle expenses Communication expenses Insurance Travel Postage and stationery 1,713 1,193 Others 5,824 4,052 Total 63,545 54,751 Percentage of total Employee costs 40.59% 40.75% Water and electricity 8.37% 9.32% Depreciation 7.76% 8.39% Support services 9.20% 9.19% Repair and maintenance 5.67% 5.77% Rental 8.03% 7.10% 95

117 Recent Developments Year ended 31 December Directors salaries 3.56% 4.14% Vehicle expenses 1.48% 1.82% Communication expenses 1.18% 1.22% Insurance 1.23% 1.58% Travel 1.08% 1.16% Postage and stationery 2.70% 2.18% Others 9.17% 7.40% Total % % Source: Audited Financial Statements Employee costs are the largest general expense, constituting between 40.7% and 40.6% of general and administrative expenses in 2007 and Employee costs increased by 15.6% from SAR 22.3 million to SAR 25.8 million in Other (expense)/income Other (expense)/income decreased by 121.4% in 2008 from SAR 5.0 million in 2007 to SAR (1.1) million, mostly due to the change in the fair value of profit rate swap contracts. Other income represented (0.2)% of total revenues and (1.1)% of net income in The following exhibit provides the details of other income: Exhibit 18 6: Other Income Year ended 31 December SAR 000 Profit on sale of property and equipment Services provided to affiliates Investment income 1,313 1,082 Change in fair value of profit rate swap contract (5,173) - Other 2,354 3,331 Total (1,078) 5,029 Percentage of total Profit on sale of property and equipment (18.32%) 7.97% Services provided to affiliates (21.45%) 4.28% Investment income (121.81%) 21.52% Change in fair value of profit rate swap contract % - Other (218.36%) 66.23% Total % % Source: Audited Financial Statements Net Income Mouwasat s net income was SAR 88.8 million in 2007 and SAR 97.1 million in Net income grew by 9.3% in from 2007 to Exhibit 18 7: Net Income Year ended 31 December SAR 000 Revenues 454, ,670 Gross Profit 200, ,394 Operating Income 110,242 96,184 Income before Zakat & Minority Interest 105,499 95,321 Net Income 97,072 88,759 96

118 Recent Developments Year ended 31 December Percentage of revenues (margin) Revenues % % Gross Profit 44.20% 43.28% Operating Income 24.25% 24.01% Income before Zakat & Minority Interest 23.21% 23.79% Net Income 21.36% 22.15% Percentage change Revenues 13.45% 16.84% Gross Profit 15.86% 28.01% Operating Income 14.62% 54.23% Income before Zakat & Minority Interest 10.68% 50.71% Net Income 9.37% 40.37% Source: Audited Financial Statements The Company s gross profit margin was 43.3% and 44.2% for the years ended 2007 and 2008, respectively. Net income grew in 2008 from SAR 88.8 million to SAR 97.1 million. The Company s net profit margin decreased from 22.1% in 2007 to 21.4% in Financial Condition, Liquidity and Other Items The following tables summarize the audited balance sheets for the periods ended 31 December 2008 and 2007: Exhibit 18 8: Balance Sheets (SAR 000) Year ended 31 December Current assts 220, ,430 Property and equipment 7,308 6,960 Investment in associates 374, ,714 Intangible assets 19,546 22,293 Total assets 622, ,398 Current liabilities 96,214 89,047 Long-term loans 83,888 88,369 Provision for end of services benefits 16,211 14,926 Total liabilities 196, ,343 Capital 250, ,000 Statutory reserve 24,906 15,199 Retained earnings 134,161 89,296 Total Equity attributable to equity holders of the parent company 409, ,495 Minority Interest 16,933 10,559 Total liabilities and shareholders equity 622, ,397 Source: Audited Financial Statements Exhibit 18 9: Balance Sheets (Percentage of Total Assets) Year ended 31 December Current assts 35.50% 34.88% Property and equipment 1.17% 1.25% Investment in associates 60.18% 59.87% Intangible assets 3.14% 4.00% Total assets % % 97

119 Recent Developments Year ended 31 December Current liabilities 15.46% 15.98% Long-term loans 13.48% 15.85% Provision for end of services benefits 2.60% 2.68% Total liabilities 31.55% 34.51% Capital 40.17% 44.85% Statutory reserve 4.00% 2.73% Retained earnings 21.56% 16.02% Total Equity attributable to equity holders of the parent company 65.73% 63.60% Minority Interest 2.72% 1.89% Total liabilities and shareholders equity % % Source Audited Financial Statements Total assets increased by 11.6% in 2008, from SAR million to SAR million. The increase in total assets is attributable to the increase in property and equipment. Property and equipment represented 59.9% of total assets in 2007, with the increase accounting for 60.2% of the total increase in the Company s assets Cash Flows The following tables summarize the audited cash flow statements for the periods ended 31 December 2008 and Exhibit 18 10: Cash flow (SAR 000) Year ended 31 December Cash generated from operating activities 132,785 89,837 Cash used in investing activities (66,473) (63,249) Cash (used in) financing activities (52,030) (29,213) Increase (decrease) in cash 14,282 (2,625) Cash at beginning of period 15,197 17,823 Cash at end of period 29,479 15,197 Source: Audited Financial Statements The Company s cash balance decreased in 2007 to SAR 15.2 million and increased in 2008 to SAR 29.5 million, mainly due to the high increase in cash from operating activities. Cash from operations grew by 47.8% from 2007 to These large increases are due to a number of factors, including: Increase in revenues, which grew by 13.4% from 2007 to 2008; and Larger proportion of credit expenses as the Company increased its payable balance by SAR 12.6 million in Total cash used in investing activities increased from SAR 63.2 in 2007 to SAR 66.5 million in The increase in cash used in investing activities is mainly attributable to the Company s additional investment in property, plant, and equipment, which amounted to SAR 68.4 million in Total cash used in financing activities in 2007 was SAR 29.2 million which increased to SAR 52.0 million in The increase in cash used in financing activities is attributed to the increase in the repayment of term loans, which amounted to SAR 32.4 million in 2008, as opposed to SAR 21.1 million in The Company has consistently been able to generate adequate amounts of cash from its operations and has been able to use this cash for working capital, expansion, investments, and dividend payments Working Capital Working capital amounted to SAR million and SAR million as of 31 December 2008 and 2007, respectively, as follows: 98

120 Recent Developments Exhibit 18 11: Working Capital (SAR 000) Year ended 31 December Current Assets Inventories 42,497 37,478 Accounts receivable & prepayments 148, ,755 Bank balances and cash 29,479 15,197 Total current assets 220, ,430 Current Liabilities Accounts payable and accruals 62,704 51,203 Zakat provision 4,049 3,335 Short term loans - 5,029 Current portion of term loans 29,461 29,479 Total current liabilities 96,214 89,047 Working capital 124, ,383 Source: Audited Financial Statements The Company s current assets are mostly composed of accounts receivable and prepayments, which constituted 67.4% of total current assets in The accounts receivable and prepayments were mainly comprised of trade receivables (85.3% of total). Inventories, which relate to the materials and drugs used by the hospitals, constituted a further 19.2% of current assets in 2008, while the remaining 13.4% was composed of bank balances and cash. Current liabilities are mostly composed of accounts payable and accruals which constituted 65.2% of total current liabilities in Trade payables constituted 57.8% of accounts payables and accruals. The current portion of term loans constituted a further 30.7% of current liabilities, while Zakat provisions constituted 4.2% in The Company s working capital increased by 18.3% from SAR million in 2007 to SAR million in This increase in working capital reflects a continuous growth in the Company s healthy financial position and ability to meet short term liabilities. The Board and Management confirm that the Company has working capital sufficient for a period of 12 months following the date of this Prospectus Property, Plant, and Equipment This account comprises land, buildings, tools, equipment, furniture, fixtures, vehicles, and construction in progress. Land is not depreciated, whereas buildings have a useful life of 33 years, and tools, equipment, furniture, fixtures, and vehicles have useful lives ranging from 4 to 10 years. The following exhibit summarizes Company s fixed assets broken down per class of assets: Exhibit 18 12: Property, Plant and Equipment (SAR 000) Year ended 31 December Gross book value Beginning 579, ,098 Additions 68,417 62,964 Transfers - - Disposals (8,324) (1,344) Ending 639, ,718 Depreciation 99

121 Recent Developments Year ended 31 December Beginning 246, ,001 Charge for the year 26,814 26,027 Disposals (7,543) (1,024) Ending 265, ,004 Net book value 374, ,713 Source: Audited Financial Statements Buildings represented 46.0% of net fixed assets in 2007 and 60.5% in Tools, equipment, furniture, fixture, and vehicles constituted 28.4% of total net fixed assets in 2007 and 25.8% in Net fixed assets increased by 12.2% in 2008, from SAR million to SAR million Investment in Subsidiary The Company owns 50% of Advance Medical Projects Company, however AMPC is not being controlled by the Company. Investment in the subsidiary increased from SAR 6.9 million in 2007 to SAR 7.3 million in Intangible Assets Intangible assets include goodwill, license, and pre-operating costs. In line with SOCPA standards, Mouwasat does not amortize goodwill. However, it is reviewed for any impairment on a yearly basis. License and pre-operating costs are amortized over periods of 3 to 7 years. Exhibit 18 13: Intangibles Assets (SAR 000) Year ended 31 December Beginning Cost 36,867 35,862 Accumulated amortization (14,573) (11,612) Net carrying amount 22,293 24,250 Ending Cost 31,108 36,867 Accumulated amortization 11,563 14,574 Net carrying amount 19,545 22,293 Source: Audited Financial Statements The net book value of intangible assets decreased in 2008 from SAR 22.3 million to SAR 19.5 million Related Party Transactions The Company has a number of related parties, including United Diagnostic Industries, United Medical Services, and Mouwasat Travel. The following exhibit summarizes Mouwasat related party transactions for the years ended 31 December 2008 and 2007: Exhibit 18 14: Related Party Transactions (SAR 000) Year ended 31 December Dues from related parties 6,693 8,919 Dues to related parties 1,871 1,957 Net dues from/(to) related parties 4,822 6,962 Source: Audited Financial Statements 100

122 Recent Developments Exhibit 18 15: Nature of related Party Transactions (SAR 000) Year ended 31 Dec Purchases 10,200 7,500 Directors' salaries 2,265 2,265 Source: Audited Financial Statements During the period, the Company entered into an agreement for management of operations of one of its subsidiaries, at an agreed management fee based on an agreed upon formula. Such fee has been eliminated in preparation of these consolidated financial statements. Moreover, the Company paid SAR 2.3 million as salaries to the Board of Directors in 2007 and Related transactions include purchases of SAR 10.2 million and SAR 7.5 million from Al Mouwasat International Company Limited. Other than what is stated above, the Board of Directors of the Company certifies that there are no commercial dealings with any member of the Board of Directors, with senior management, with any shareholder who owns more than 5% of the shares of the Company, or with any of their relatives who may directly or indirectly benefit from such dealings, and that none are allowed to vote on such dealings Borrowings Mouwasat obtained credit facilities from commercial banks in the form of bank overdrafts, short-term loans, letters of credit, and letters of guarantee which had a book value of SAR million in 2008 and SAR million in The Company s borrowings are secured by the following: Mortgage over the land, equipment and furniture of Mouwasat Hospital Dammam and Mouwasat Hospital Al-Qatif, to the Ministry of Finance; Corporate guarantee and assignment of certain contract proceeds to SABB; Corporate guarantee to the National Commercial Bank; Corporate guarantee and assignment of certain contract proceeds to the Saudi Hollandi Bank; and Corporate guarantee to the Arab National Bank. According to the Company s management, all the above facilities are Shariah-compliant. Exhibit 18 16: Book Value of Bank Borrowings (SAR 000) Year ended 31 December At the beginning of the period 117, ,629 Additions 27,889 33,313 Repaid during the year (32,391) (21,093) At the end of the period 113, ,849 Current Portion 29,461 29,479 Non-current portion 83,888 88,369 Source: Audited Financial Statements Capital Commitments The Directors of the Company authorized future capital expenditure amounting to SAR 94.8 million in 2008 compared to SAR 86.8 million in This capital expenditure represents investment in a new hospital in Riyadh, accommodation for staff and clinical building in Dammam Minority Interest Minority interests represent 49.0% interest in the Eastern Medical Services Company Limited and 5.0% interest in Specialized Medical Clinic Company Limited. 101

123 Recent Developments 18.5 Statement of Management s Responsibility for Financial Information The Management s Discussion and Analysis of Financial Condition and Results of Operations section of the Prospectus has been drafted by the Management of the Company and approved by the Board of Directors. Except as set forth elsewhere in this Prospectus, the Management believes that there has been no material adverse change in the financial position or prospects of the Company since 1 January 2009 until the date of the Prospectus, and accepts full responsibility for the authenticity and accuracy of the information and analysis of financial results and confirms, after making all reasonable inquiries, that full and fair disclosure has been made and there is no other information or documents the omission of which make any information or statements therein misleading Accountants Report The audited financial statements as at and for each of the two years ended 31 December 2008 and 2007, and the notes thereto have been prepared by Ernst & Young, independent auditors of Mouwasat for the above stated periods. Ernst & Young do not themselves, nor do any of their relatives or affiliates, have any shareholding or interest of any kind in the Company. In addition, Ernst & Young have given and not withdrawn their written consent to the publication in the Prospectus of their accountants report. 102

124 Recent Developments AUDITORS REPORT TO THE SHAREHOLDERS OF MOUWASAT MEDICAL SERVICES COMPANY (A CLOSED SAUDI JOINT STOCK COMPANY) Scope of the audit: We have audited the accompanying consolidated balance sheet of Mouwasat Medical Services Company (the Group ), a Closed Saudi Joint Stock Company, as at 31 December 2008 and the related consolidated statements of income, cash flows and changes in shareholders equity for the year then ended. These consolidated financial statements are the responsibility of the parent company s board of directors and have been prepared by them in accordance with the provisions of Article 123 of the Regulations for Companies and submitted to us together with all the information and explanations which we required. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the Kingdom of Saudi Arabia. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable degree of assurance to enable us to express an opinion on the consolidated financial statements. Unqualified opinion: In our opinion, the consolidated financial statements taken as a whole: i) present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2008 and the consolidated results of its operations and its consolidated cash flows for the year then ended in accordance with accounting standards generally accepted in the Kingdom of Saudi Arabia. ii) comply with the requirements of the Regulations for Companies and the parent company s articles of association in so far as they affect the preparation and presentation of the consolidated financial statements. for Ernst & Young Abdulaziz Saud Alshubaibi Certified Public Accountant Registration No Rabi i 1430H 10 March 2009 Alkhobar 103

125 Recent Developments Mouwasat Medical Services Company (A Closed Saudi Joint Stock Company) Consolidated Balance Sheet As at 31 December 2008 Notes SAR SAR Assets Current assets Bank balances and cash 29,479,244 15,197,433 Accounts receivable and prepayments 4 148,947, ,755,254 Inventories 5 42,497,989 37,477,657 Total current assets 220,924, ,430,344 Non-current assets Investment in an associate 7 7,308,450 6,960,405 Property, plant and equipment 8 374,534, ,713,511 Intangible assets 9 19,545,504 22,293,453 Total non-current assets 401,388, ,967,369 Total Assets 622,312, ,397,713 Liabilities & Shareholders Equity Current liabilities: Accounts payable and accruals 10 62,703,768 51,203,356 Zakat provision 11 4,049,490 3,334,684 Short term loan 5,029,418 Current portion of term loans 12 29,460,916 29,479,589 Total current liabilities 96,214,174 89,047,047 Non-current liabilities: Term loans 12 83,887,537 88,369,779 Employees terminal benefits 16,210,730 14,926,392 Total non-current liabilities 100,098, ,296,171 Total liabilities 196,312, ,343,218 Shareholders Equity: Equity attributable to equity holders of the parent company Share capital ,000, ,000,000 Statutory reserve 24,906,272 15,199,050 Retained earnings 134,160,804 89,295, ,067, ,494,860 Minority interests 23 16,933,371 10,559,635 Total shareholders equity 426,000, ,054,495 Total liabilities and shareholders equity 622,312, ,397,713 The attached notes 1 to 23 form part of these consolidated financial statements. 104

126 Recent Developments Mouwasat Medical Services Company (A Closed Saudi Joint Stock Company) Consolidated Statement of Income Year ended 31 December 2008 Notes SAR SAR Operating revenues 346,582, ,435,494 Trading sales 105,061,822 88,916,756 Management fee 16 2,908,292 2,317, ,552, ,670,167 Cost of operations (178,608,865) (158,022,607) Cost of sales (75,043,003) (69,253,916) (253,651,868) (227,276,523) Gross Profit 200,900, ,393,644 Expenses Selling and distribution 17 (24,365,588) (19,496,506) General and administration 18 (63,544,848) (54,750,778) Amortisation of intangible assets 9 (2,747,949) (2,962,117) (90,658,385) (77,209,401) Income from main operations 110,242,378 96,184,243 Other (expenses)/income 19 (1,077,901) 5,029,006 Financial charges (3,665,150) (5,892,440) (4,743,051) (863,434) Income before Zakat and minority interests 105,499,327 95,320,809 Minority interest 23 (3,988,794) (2,502,853) Income before Zakat 101,510,533 92,817,956 Zakat 11 (4,438,317) (4,059,420) Net income for the year 97,072,216 88,758,536 Earnings per share (from net income) Earning per share (from main operations) The attached notes 1 to 23 form part of these consolidated financial statements. 105

127 Recent Developments Mouwasat Medical Services Company (A Closed Saudi Joint Stock Company) Consolidated Statement of Cash Flows Year ended 31 December SAR SAR Operating Activities: Income before zakat and minority interests 105,499,327 95,320,809 Adjustments for: Depreciation 26,814,030 26,027,279 Amortisation of intangible assets 2,747,949 2,962,117 Employees terminal benefits, net 1,284, ,501 Income from investments (1,312,945) (1,082,270) Financial charges 3,665,150 5,892,440 Gain on disposal of property and equipment (197,501) (400,642) Change in fair value of profit rate swap contracts 5,173, ,673, ,605,234 Changes in operating assets and liabilities: Receivables (4,806,925) (26,552,684) Inventories (5,020,332) (1,941,532) Payables 6,327,136 (2,467,896) 140,173,503 98,643,122 Cash from operations Financial charges paid (3,665,150) (5,892,440) Zakat paid (3,723,511) (2,913,940) Net cash from operating activities 132,784,842 89,836,742 Investing Activities: Purchase of property and equipment (68,417,292) (62,964,274) Proceeds from disposal of property and equipment 979, ,104 Income from investments 964,900 - License related costs - (1,005,413) Net cash used in investing activities (66,472,698) (63,248,583) Financing Activities: Bank overdraft - (7,930,275) Term loan proceeds 27,889,984 33,313,328 Repayment of Term loans (32,390,899) (21,093,008) Short term loans (5,029,418) (1,003,372) Dividends paid (42,500,000) (32,500,000) Net cash used in financing activities (52,030,333) (29,213,327) Increase (decrease) in bank balances and cash 14,281,811 (2,625,168) Bank balances and cash at the beginning of the year 15,197,433 17,822,601 Bank balances and cash at the end of the year 29,479,244 15,197,433 The attached notes 1 to 23 form part of these consolidated financial statements. 106

128 Recent Developments Mouwasat Medical Services Company (A Closed Saudi Joint Stock Company) Consolidated Statement of Changes in Shareholders Equity Year ended 31 December 2008 Equity attributable to equity holders of the parent company Share Statutory Retained Total capital reserve earnings SR SR SR SR Balance at 31 December ,000,000 6,323,197 41,913, ,236,324 Net income for the year ,758,536 88,758,536 Transfer to statutory reserve - 8,875,853 (8,875,853) - Dividends (note 14) - - (32,500,000) (32,500,000) Balance at 31 December ,000,000 15,199,050 89,295, ,494,860 Net income for the year ,072,216 97,072,216 Transfer to statutory reserve - 9,707,222 (9,707,222) - Dividends (note 14) - - (42,500,000) (42,500,000) Balance at 31 December ,000,000 24,906, ,160, ,067,076 The attached notes 1 to 23 form part of these consolidated financial statements. 107

129 Recent Developments 1- Activities: Mouwasat Medical Services Company (A Closed Saudi Joint Stock Company) Notes to Comparative Consolidated Financial Statements 31 December 2008 The parent company is registered in Saudi Arabia under Commercial Registration number dated 12 Ramadan 1417H corresponding to 22 January The parent company was converted into a closed Saudi Joint Stock Company in accordance with Ministerial Resolution No 1880 dated 4 Dhu al Hijja 1426 (corresponding to 4 January 2006). The parent through its multiple branches is engaged in the acquisition, management, operation and maintenance of hospitals, medical centers, drug stores, pharmacies and wholesale of medical equipment and drugs. The parent company is owned 90% (2006 and 2005: 90%) by Saudi nationals and institutions, and 10% (2006 and 2005: 10%) by a Bahraini company. The consolidated financial statements include the financial statements of the parent company and its following subsidiaries whose financing and operating policies are controlled by the parent company: Name of the entity Percentage of ownership Eastern Medical Services Company Limited 51% Specialized Medical Clinic Company Limited 95% 2- Basis of Preparation The consolidated financial statements of Mouwasat Medical Services Company and its subsidiaries (the Group ) have been prepared in accordance with accounting standards generally accepted in the Kingdom of Saudi Arabia. The financial statements of the subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies. All inter company balances and transactions that are recognised in the respective financial statements are eleminated in full. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the parent obtains control, and continue to be consolidated until the date that such control ceases. 3- Significant Accounting Policies The consolidated financial statements have been prepared in accordance with accounting standards generally accept in the Kingdom of Saudi Arabia. The significant accounting policies are as follows. Accounting convention The consolidated financial statements are prepared under the historical cost convention. Use of estimate The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Accounts receivable Accounts receivable include billings made on credit which are outstanding at the balance sheet date, net of provision for doubtful debts. Inventories Inventories are stated at the lower of cost and market value after making due allowance for any obsolete or slow moving items. Cost is determined on a weighted average basis. Investment in an associate Investment in a company wherein the Group does not have control over the financial and operating policies is accounted in accordance with the relevant standards. 108

130 Recent Developments Property and equipments Mouwasat Medical Services Company (A Closed Saudi Joint Stock Company) Notes to Comparative Consolidated Financial Statements 31 December 2008 Property and equipment is stated at cost less accumulated depreciation and any impairment in value. The cost of property and equipment other than freehold land and construction in progress is depreciated on a straight line basis over the estimated useful lives of the assets. The carrying values of property and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount, being the higher of their fair value less costs to sell and their value in use. Expenditure for repair and maintenance are charged to income. Improvements that increase the value or materially extend the useful life of the related assets are capitalized. Intangible assets These represent goodwill on acquisition of subsidiary, and license and pre operating costs of certain hospitals and dispensaries. Goodwill is not amortised, but reviewed for any impairment in value on an annual basis. The cost of other intangible assets are amortised over the estimated period of benefit. Accounts payable and accruals Liabilities are recognised for amounts to be paid in the future for goods when risks and rewards attributable to goods are transferred to the Group or services are received, whether or not billed to the Group. Zakat Zakat is provided for in accordance with Saudi Arabian fiscal regulations. The provision is charged to the consolidated statement of income. Additional amounts, if any, that may become due on finalisation of the assessment are accounted for in the year in which the assessment is finalised. Employees terminal benefits Provision is made for amounts payable at the balance sheet date in accordance with the employees contracts of employment. Statutory reserve As required by Saudi Arabian Regulations for Companies, 10% of the net income for the year has been transferred to the statutory reserve. The parent company may resolve to discontinue such transfers when the reserve totals 50% of the capital. The reserve is not available for distribution. Foreign currencies Transactions in foreign currencies are recorded in Saudi Riyals at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate o exchange ruling at the balance sheet date. All differences are taken to consolidated statement of income. Revenue recognition Revenue is recognised when goods are delivered or services are rendered to customers. Derivative financial instruments The company uses derivative financial instruments such as profit rate swaps to hedge its risks associated with commission rate fluctuations. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are remeasured at fair value at subsequent reporting dates. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Any gains or losses arising from changes in fair value on derivatives during the year that do not qualify for hedge accounting are taken directly to consolidated statement of income. 109

131 Recent Developments Expenses Mouwasat Medical Services Company (A Closed Saudi Joint Stock Company) Notes to Comparative Consolidated Financial Statements 31 December 2008 Selling and distribution expenses are those that specifically relate to marketing personnel, advertisements, promotions as well as bad debts expense. All other expenses, other than cost of operations, cost of sales, amortisation of intangible assets and financial charges, are classified as general and administration expenses, and other expenses as appropriate. Borrowing costs Borrowing costs that are directly attributable to the construction of an asset are capitalised up to stage when substantially all the activities necessary to prepare the qualifying asset for its intended use are completed and, thereafter, such costs are charged to the consolidated statement of income. Fair values The fair values of commission bearing items is estimated based on discounted cash flows using commission rates for items with similar terms and risk characteristics. Earning per share Earnings per share from net income is calculated by dividing the net income for the year by the weighted average number of ordinary shares outstanding during the year. Earnings per share from main operations is calculated by dividing income from main operations for the year by the weighted average number of ordinary shares outstanding during the year. Segmental reporting A segment is a distinguishable component of the Group that is engaged either in providing products or services (a business segment) or in providing products or services within a particular economic environment (a geographic segment), which is subject to risks and rewards that are different from those of other segments. 4- Accounts Receivable and Prepayments SAR SAR Trade receivables 127,085, ,050,139 Due from affiliates(notes 6 and 16) 6,692,880, 8,918,731 Advances to suppliers 1,651,422 5,134,413 Prepaid expenses 6,190,728 5,185,789 Accrued income 373,202 1,772,246 Staff loans and advances 1,203,159 1,003,392 Other receivables 5,750,654 5,690, ,947, ,755, Inventories SAR SAR Surgical instruments and consumables 19,350,703 18,618,349 Pharmaceuticals, cosmetics and others 22,475,010 18,232,159 Spare parts 672, ,149 42,497,989 37,477, Related Party Transactions The Group s purchases include SR 10.2 million (2007: SR 7.5 million) from Al Mouwasat International Company Limited. The Company s executive directors salaries are disclosed in note

132 Recent Developments Mouwasat Medical Services Company (A Closed Saudi Joint Stock Company) Notes to Comparative Consolidated Financial Statements 31 December 2008 The parent company entered into an agreement for management of operations of one of its subsidiaries, at an agreed management fee based on an agreed upon formula. Such fee has been eliminated in preparation of these consolidated financial statements. The Company s profit sharing agreement have been disclosed in note 16. Pricing policies and terms of payment for these transactions are approved by the Group s management. Amounts due from and due to affiliates are shown in notes 4 and 10 respectively. 7- Investment in an Associate The Group has 50% ownership interest in Advance Medical Project Company (AMPC), a limited liability company registered in the Kingdom of Saudi Arabia. The investment in associate balance at 31 December 2008 amounted to SR 7,308,450 (31 December 2007: SR 6,960,405). 8- Property and Equipment The estimated useful lives of the assets for the calculation of depreciation are as follows: Buildings Tools and equipment Furniture & fixtures Motor vehicles 33 years 4 to 10 years 4 to 10 years 4 to 5 years Freehold Land Buildings Tools, equipment, furniture, fixtures, and vehicles Construction in progress Total 2008 Total 2007 SR SR SR SR SR SR Cost: At the beginning of the 39,715, ,863, ,485,175 45,653, ,718, ,097,882 year Additions - 3,465,874 12,253,629 52,697,789 68,417,292 62,964,274 Transfer - 78,681,749 7,597,679 (86,279,428) - - Disposals (600,000) (384,080) (7,340,741) - (8,324,821) (1,344,121) At the end of the year 39,115, ,627, ,995,742 12,071, ,810, ,718,035 Depreciation: At the beginning of the - 89,200, ,803, ,004, ,000,904 year Charge for the year - 9,123,996 17,690,034-26,814,030 26,027,279 Disposals - (384,080) (7,158,548) - (7,542,628) (1,023,659) At the end of the year - 97,940, ,335, ,275, ,004,524 Net book amounts: At 31 December ,115, ,686,616 96,660,528 12,071, ,534,580 At 31 December ,715, ,662,989 94,681,447 45,653, ,713,511 Construction in progress mainly represents the cost incurred for construction of extention of hospital building and administration office for Jubail hospital. Financial charges amounting to SR 3.4 million (2007: SR 1.5 million) have been capitalised, related to assets constructed during the year. 111

133 Recent Developments 9- Intangible Assets Mouwasat Medical Services Company (A Closed Saudi Joint Stock Company) Notes to Comparative Consolidated Financial Statements 31 December 2008 Goodwill License Pre operating Total 2008 Total 2007 costs SR SR SR SR SR Cost At the beginning of the year 16,371,000 3,696,650 16,799,496 36,867,146 35,861,733 Additions ,005,413 Write off - - (5,759,084) (5,759,084) - At the end of the year 16,371,000 3,696,650 11,040,412 31,108,062 36,867,146 Amortisation At the beginning of the year - 1,232,221 13,341,472 14,573,693 11,611,576 Charge for the year - 1,232,211 1,515,738 2,747,949 2,962,117 Write off - - (5,759,084) (5,759,084) - At the end of the year - 2,464,432 9,098,126 11,562,558 14,573,693 Net book amount At 31 December ,371,000 1,232,218 1,942,286 19,545,504 At 31 December ,371,000 2,464,429 3,458,024 22,293,453 Goodwill is not amortised. License cost is amortised over 3 years and pre operating costs are amortised over periods of 5 to 7 years. 10- Accounts Payable and Accruals SAR SAR Trade accounts payable 36,257,534 35,452,289 Accruals 12,606,480 10,912,203 Due to affiliates (note 6) 1,871,216 1,957,398 Other payables 11,968,538 2,881,466 62,703,768 51,203, Zakat Zakat charge for the year represents provision made by the parent company as well as one of the subsidiaries for the year. Status of assessments Zakat assessments for the parent company and Specialized Medical Clinic Company Limited have been agreed upto The zakat assesments for Eastern Medical Services Company Limited have been agreed with the Department of Zakat and Income Tax up to

134 Recent Developments Mouwasat Medical Services Company (A Closed Saudi Joint Stock Company) Notes to Comparative Consolidated Financial Statements 31 December Term Loans Ministry of finance (note a) Saudi British Bank (note b) National Commercial Bank (note c) Arab National Bank (note d) Saudi Hollandi Bank (note e) Banque Saudi Fransi (note f) Total 2008 Total 2007 SR SR SR SR R SR SR SR At 1 January 34,000,767 21,666,665 5,853,887 38,272,493 18,055, ,849, ,629,048 Obtained during the year 4,954, ,433-17,122,462-5,603,240 27,889,984 33,313,328 Repaid during the year (4,411,644) (5,777,776) (5,853,887) (8,014,259) (8,333,333) - (32,390,899) (21,093,008) At 31 December 34,543,972 16,098,322-47,380,696 9,722,223 5,603, ,348, ,849,368 Less: current portion 1,929,933 5,861,560-10,767,942 8,333,333 2,568,148 29,460,916 29,479,589 Non current portion 32,614,039 10,236,762-36,612,754 1,388,890 3,035,092 83,887,537 88,369,779 a) The term loans from Ministry of Finance comprise of following: i) A term loan of SR 39.7 million. The loan was repayable in sixteen equal annual installments. The last installment was repaid during the year. ii) During 2007, the Group has entered into a new loan agreement with the Ministry of Finance for a total facility of SR 10.2 million. The Company utilised SR 9.5 million (2007: SR 4.5 million) at the balance sheet date. The loan is repayable in 16 annual installments commencing after completing four years from 7 July 2007 (corresponding to 22/06/1428H). iii) A term loan obtained of SR 30.8 million by the Group. The loan is repayable by 16 equal annual installments each of SR 1,929,933 and last being payable on 15 May 2021 (corresponding to 3/10/1442H). The term loans from the Ministry of Finance are commission free and are secured by a mortgage over the land, equipment and furniture of hospitals in Dammam and Qateef. b) Term loans from Saudi British Bank (Murabaha Liquidity Finance) comprise of the following: (i) A term loan of SR 26 million obtained in The loan is repayable in fifty four monthly installments of SR 481,481 each and the last being payable on 31 July The loan is secured by a corporate guarantee of the Group and assignment of certain contract proceeds. (ii) Term loan of SR 0.2 million obtained during the year. The loan is repayable in thirty monthly installments of SR 6,982 each and last being payable in 2 June c) Loan from National Commercial Bank was fully repaid during the year. d) The balance represents the Tawaruq loan from Arab National Bank and the loan is secured by corporate guarantee of the parent company. The total Tawaruq loan facility amounted SR 50 million which was fully drawn during the year. The term of the loan is seven years (including two years grace period) and is repayable in monthly installments commenced on 1 May

135 Recent Developments Mouwasat Medical Services Company (A Closed Saudi Joint Stock Company) Notes to Comparative Consolidated Financial Statements 31 December 2008 e) The term loan from Saudi Hollandi Bank is secured by corporate guarantee of the parent company and the assignment of certain contract proceeds. The loan is repayable in thirty six monthly installments of SR 694,444 each. The last installment is payable on 1 March f) During the year, the Company obtained a Tawaruq loan facility amounted SR 50 million from Banque audi Fransi and SR 5.6 million have been drawn at the balance sheet date. The loan is secured by corporate guarantee of the parent company. The term loan is repayable in 36 monthly installments commencing from 1 February All of the above facilities are substantially Shariah compliant. Installments of various loans due in 2009 are shown as current liability. 13- Share Capital Share capital is divided into 25,000,000 shares of SR 10 each (2007: 25,000,000 shares of SR 10 each). 14- Dividends The directors of the parent company have proposed and paid interim dividends of SR 20 million (SR 0.8 per share) (2007: SR 12.5 million (SR 0.5 per share)) during the year and have further proposed a final dividend of SR 15 million (SR 0.6 per share) (2007: SR 22.5 million (SR 0.9 per share)) for approval at the Annual General Meeting. 15- Segmental Information Business segments: Consistent with the Group s internal reporting process, business segments have been approved by management in respect of the Group s activities. Transactions between the business segments are reported as recorded by the Group s transfer pricing system. The Group s revenue, gross profit, property and equipment, total assets, and total liabilities, by business segment, are as follows: In patient Out patient Pharmaceutical Management Total fees SAR SAR SAR SAR SAR 31 December 2008 Revenue for the year 173,182, ,400, ,061,822 2,908, ,552,631 Gross profit for the year 83,934,006 84,039,646 30,018,819 2,908, ,900,763 Property and equipment, net book 143,614, ,795,420 87,124, ,534,580 value Total assets 238,624, ,925, ,762, ,312,888 Total liabilities 75,275,680 75,370,423 45,666, ,312, December 2007 Revenue for the year 154,620, ,815,051 88,916,756 2,317, ,670,167 Gross profit for the year 75,658,831 75,754,056 19,662,840 2,317, ,393,644 Property and equipment, net book 129,541, ,704,771 74,467, ,713,511 value Total assets 216,353, ,626, ,417, ,397,713 Total liabilities 74,658,028 74,751,994 42,933, ,343,218 Geographical segments: All of the Group s operating assets and principal markets of activity are located in the Kingdom of Saudi Arabia. 16- Profit Sharing Agreement The parent company has entered into an agreement for management of operations of a hospital in Riyadh at an agreed management fee and profit sharing. 114

136 Recent Developments Mouwasat Medical Services Company (A Closed Saudi Joint Stock Company) Notes to Comparative Consolidated Financial Statements 31 December Selling and Distribution Expenses SAR SAR Employee costs 7,763,277 6,886,999 Advertising and promotions 3,240,050 3,174,304 Doubtful debts 13,329,937 9,400,540 Other 32,324 34,663 24,365,588 19,496, General and Administrative Expenses SAR SAR Employee costs 25,792,767 22,309,052 Water and electricity 5,315,622 5,103,313 Depreciation 4,930,911 4,592,262 Support services 5,846,039 5,029,779 Repair and maintenance 3,602,468 3,159,936 Rental 5,100,715 3,884,909 Executive directors salaries 2,265,000 2,265,000 Vehicle expenses 937, ,234 Communication expenses 751, ,635 Insurance 779, ,210 Travel 685, ,749 Postage and stationery 1,713,245 1,192,953 Others 5,824,036 4,051,746 63,544,848 54,750, Other (Expense)/Income SAR SAR Gain on disposal of property and equipment 197, ,642 Services provided to an affiliate 231, ,184 Income from investment 1,312,945 1,082,270 Change in fair value of profit rate swap contract (5,173,276) - Other 2,353,683 3,330,910 (1,077,901) 5,029, Capital Commitments The directors have authorised future capital expenditure amounting to SR 94.8 million (2007: SR 86.8 million) mainly in connection with new hospital in Riyadh, dispensary and accommodation buildings in Dammam. 21- Risk Management Commission rate risk Commission rate risk is the risk that the value of financial instruments will fluctuate due to changes in the market rates. The Group is subject to commission rate risk on its commission bearing liabilities, which comprise term loans. 115

137 Recent Developments Credit risk Mouwasat Medical Services Company (A Closed Saudi Joint Stock Company) Notes to Comparative Consolidated Financial Statements 31 December 2008 Credit risk is the risk that one party will fail to discharge an obligation and will cause the other party to incur a financial loss. The Group seeks to manage its credit risk with respect to customers by monitoring outstanding receivables. Adequate allowances are made for debts considered doubtful. At the balance sheet date, no significant credit risk was identified by the management. Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in raising funds to meet commitments associated with financial instruments. Liquidity risk may result from an inability to sell a financial asset quickly at an amount close to its fair value. The Group limits its liquidity risk by ensuring that bank facilities are available. The Group s invoicing terms require amounts to be paid within 60 to 120 days of the date of the invoice. Trade payables are normally settled within 60 to 90 days of the date of purchase. Currency risk Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. The Group did not undertake significant transactions in currencies other than Saudi Riyals and US Dollars, during the year. As Saudi Riyal is pegged to US Dollar, balances in US Dollars are not considered to represent significant currency risk. 22- Fair Values of Financial Instruments Fair value is the amount for which an asset could be exchanged, or a liability settled between knowledgeable willing parties in an arm s length transaction. The Group s financial assets consist of bank balances and cash, and receivables, its financial liabilities consist of term loans, payables and accrued expenses. The fair values of financial instruments are not materially different from their carrying values at the balance sheet date. 23- Minority Interests Minority interests represent 49% (2007: 49%) interest in the Eastern Medical Services Company Limited and 5% (2007: 5%) interest in Specialized Medical Clinic Company Limited. 116

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